Low-Risk Investments for Your Money
Love to make cash work for you, but don't love the risk? These low-risk investments will help you avoid serious losses in most cases.
Risk is one thing that can be both terrifying and rewarding. If you take the right risks, you can easily find your investments become incredibly profitable. Many people took what appeared to be significant risks and saw it pay off in thousands, millions, or even billions.
That being said, too much risk just runs into a major mess filled with losses and foolish behavior. That's why most people who want to see investments grow will pad their portfolios with low-risk investment options.
Not sure where to start? Financial experts have long called these the best low-risk investments out there.
(Note: This is not a good route for short-term investments. Low risk investing options are a must for anyone, simply because they are a guaranteed way to make money investing regardless of economic downturn. If you are looking for riskier, more creative investment ideas, this is not it.)
Certificates of Deposit
Certificates of Deposit are some of the most low-risk investments you can make, and unlike others on this list, do not hinge on the stock market. CDs let you deposit money in your bank account for a set amount of time. After they mature, you get a guaranteed amount of cash back.
The thing with these investments is that the minimum amount you can put in is often more than what most people will have. Additionally, returns aren't always that high. In fact, they may not even be good enough to keep up with the pace of inflation.
High-return CDs often will have return rates of 2.5 annual percentage yield. Since inflation stays steady at 3 percent, these might not be a good investment.
Bonds are one of the most old school, low-risk investments that money can buy. These government-backed options are Uncle Sam's way of borrowing money for municipal, local, or federal projects. These bonds have low rates, but are immune from federal income tax.
The end result is less taxes, which can mean overall better returns. Municipal bonds are also very, very, very unlikely to default. As such, that means that you can almost entirely guarantee gain.
If you want to invest in the stock market, one of the most popular low-risk investments would be dividend stocks. These are (often popular) stocks that pay consumers small amounts of cash throughout the years as a way of saying, "Thanks for investing!"
This is still a semi-risky investment, because stocks are, by nature, risk-filled. However, the regular payouts and the potential for capital gains make it a reasonable option for folks who want low-ish risk and reasonable payout.
Annuities can be decent low-risk investments, but they have gotten a bad reputation due to the tendency of shady salesmen using them as a way to get a quick buck. With an annuity, the basic gist is that you give an insurance company a large lump sum of money—and they give you a guaranteed rate of return.
The thing that makes these dodgy investments, though, are all the catches in the contract. It's up to you to determine whether or not you want to start getting payouts that are guaranteed. If it is, you will often need to specify that in the contract.
These catches and extra fine print terms are often what determines whether an annuity is worth it. What makes it a safe option is the guaranteed return. On the other hand, whether it's a good option generally is based on what you're seeing in the contract.
Annuities can also be bought and sold. So, there's that perk, too.
Treasury Inflation Protected Securities
If you like Uncle Sam and trust him enough, you can try out Treasury Inflation Protected Securities. TIPS, as they're called, are treasury-backed securities that are protected against the rate of inflation. These are government-backed securities that sell at around $100 a pop, in $100 increments.
TIPS usually have low-interest rates, along the lines of 1 percent per year. However, TIPS fluctuate against inflation by adding inflation-adjustments into the principal. So, depending on how long they wait, TIPS can end up offering a great way to save a pretty penny.
The issue you need to be aware of with TIPS is that it can often take decades for these securities to mature until you can sell them or cash out. However, if time is on your side, it's worth checking out.
You can get a better idea of how TIPS work online using charts.
If you haven't noticed, most low-risk investments involve Uncle Sam. The other way that you can enjoy the benefits of government-backed investments is savings bonds. These have two different kinds of savings bonds: fixed-rate and adjustable rate.
The fixed rate bonds never fluctuate. You will know exactly how much you get back. Adjustable rates, though, fluctuate with the economy and are reassessed every six months. So, these can rise and sink.
If you leave the bonds to maturation, the rate of the bonds doubles, which leads to a 3.5 percent gain. If you take them out, you get the interest rate profit of what you agreed to, minus a withdrawal fee.
Okay, admittedly, these are the lowest of the low-risk investments—and realistically, aren't so much investments as they are utilities. This is because the interest rate with bank accounts is really, really small. In fact, a typical bank account won't even get a 1 percent interest rate.
That being said, certain bank accounts have a much better turnout than others and may offer additional perks. Things like cash back on certain purchases, concierge service (yes, concierge service), and even getting bonuses for referred friends can add up.
If you're looking for a good return, opt for a high-interest savings account and take into account waived fees and other stuff. Generally speaking, keeping money in a savings account will end up making you lose monetary value over the next couple of years. So, you might want to skip on this.
Money Market Accounts
This is a pretty retro choice among low-risk investment options, primarily because they were far more popular during the 1980s. Back then, rates were much higher, which would lead to a lot better returns. MMAs are safe, FDIC-insured accounts that are tied to the value of a dollar.
MMAs allow you to withdraw a certain amount every year, and can be opened with as little as $50. However, their rates now are only slightly higher than a typical high-yield savings account—currently hovering around 1.5 percent.
If you're looking to fund your retirement account, one of the best low-risk investments are the 401(k) retirement plans offered by your employer. These are specially designed investment vehicles that are managed by professional accountants and are designed to grow in the long term.
What makes this such a low-risk option is that employers often will match what you put into the account and that laws bar employers from running away with the money in the event of bankruptcy. So, if you put in $50, and your employer puts in $50 without cutting your pay, that's a pretty good investment, don't you think?
Don't mind trying your hand at the stock market but want to get a reliable, dividend-rich option? You might try to consider utility stock—as in, stock shares in companies that work with utilities like water, sanitation, and of course, energy.
We will always need these things, regardless of what's going on in the economy. As a result, they tend to be surprisingly low risk investments on the market. More importantly, this stock category is known for having excellent dividends—so it pays you twice.