Low-risk investments are an important part of maintaining a well-balanced portfolio. Learn about some of our favorite options below!
If you’re looking for best way to invest money, there are plenty of options available. From investing in stocks to becoming a landlord, investors of all stripes can find ways to make their money work for them. And, you know what they say: The higher the risk, the bigger the reward!
That’s sounds great and all, but what if you don’t want to risk everything for a chance to hit it big? Maybe you’re getting ready to retire, or maybe you can’t (or shouldn’t) be taking a lot of risk with your money right now. Is finding a low-risk investment with a high return even possible?
In short, yeah, it is.
Regardless of what you may have heard, you can earn a relatively high yield while minimizing your risk. Although there’s no such thing as a completely safe investment, there are ways to invest without putting too much on the line.
Sound interesting? We got you covered! Here are 16 of the best low-risk investments you might want to try this year.
- 1) High-Yield Savings Accounts
- 2) Money Market Accounts
- 3) Fully Secured Bonds
- 4) Certificates of Deposit (CDs)
- 5) Exchange Traded Funds (ETFs) – Medium Risk
- 6) U.S. Treasury Securities
- 7) Municipal Bonds
- 8) Money Market Funds
- 9) Pay Off Your Mortgage Early
- 10) Credit Card Rewards
- 11) Bank Bonuses
- 12) Peer-to-Peer Lending
- 13) Dividend-Paying Stocks – Medium Risk
- 14) Annuities
- 15) Preferred Stocks – Medium Risk
- 16) Stable Value Funds
Our Favorite Low-Risk Investments
Whether you’re an investment pro or an average Joe, we believe putting some of your savings into low-risk investments is a solid idea. Of course, everybody’s financial situation is unique. Be sure to do your due diligence and carefully consider each investment option before you making any decisions.
Here are some of our favorites to consider:
1) High-Yield Savings Accounts
When it comes to low-risk investment options, a high yield-savings account is one of the best ways to invest money. Although the potential for high earnings is typically lower than it is in the stock market, up to $250,000 of your money is insured by the FDIC per account – provided you deposit the money with an FDIC insured institution.
While a savings account isn’t technically an investment, you the best high-yield savings accounts earn a modest rate without the risk of losing your money. It’s super easy to manage since there isn’t much to do after opening your account.
Currently, our favorite savings account on the market is with CIT Bank. They have competitive interest rates on most of their products, and their Savings Builder account offers a 0.45% APY.
2) Money Market Accounts
If you’re looking for a relatively safe investment option that’s similar to a savings account, you might consider opening a money market account. They’re FDIC insured and typically offer higher interest rates than traditional savings accounts, though they also require higher minimum balances.
There is some flexibility in accessing your funds with a money market account, and you can usually withdraw money a few times a month. If your balance dips below the minimum, however, banks can charge a fee or reduce the rate you earn on your deposit.
When it comes to stashing cash for your emergency fund, a money market account is considered one of the best ways to invest money. It combines the best of checking and savings accounts by offering instant access to your money along with an interest rate that could deliver relatively high returns.
Keep in mind that a money market account is not the same thing as a money market fund. The key difference is that a money market fund is not FDIC insured. Again, with a money market account, your balance is FDIC insured up to $250,000.
With the changing market, you’ll want to compare account options across multiple banks because interest rates can change at any time. Find the top rates today by checking out our list of the best money market accounts here.
3) Fully Secured Bonds
Fully secured bonds are another good low-risk investment option.
Worthy is a company that offers 5% fixed-interest rate bonds. The bonds are registered through the Securities and Exchange Commission, and the proceeds from bond sales are used to lend money to small businesses in the U.S. All loans are fully secured through the liquid assets of the borrowers.
The bonds have a term of 36 months, but you can cash them out without penalty at any time. Best of all, each bond costs just $10, so anybody can get started right away. Learn more about Worthy Bonds by reading more below.
4) Certificates of Deposit (CDs)
Like high-yield savings accounts, a “certificate of deposit” is also widely considered a pretty safe investment. Again, if you do business with an FDIC insured bank, any money you put in a CD is insured up to the first $250,000.
When you invest in term CDs, the bank assures a guaranteed interest rate over a specific time period – such as six months, a year, or five years. Some banks also offer variable-rate CDs where the interest rate is tied to some type of index – like a stock market index, the prime interest rate, or Treasury Bills.
In many cases, you can open a CD with as little as $1,000. However, there are “jumbo CDs” that sometimes have investment minimums of $100,000 or more. As you might imagine, larger investments tend to fetch a better return, but not always. If you don’t have a lot of extra money sitting around, you can usually get a higher rate if you choose a CD with a longer term – generally at least one or two years.
With Certificates of Deposit, the catch is that your money is tied up for a predetermined amount of time. To lower that risk, setting up a CD ladder may be an option. Made up of multiple CDs that mature at various intervals, you’ll have access to different portions of your money as each term is up.
Just don’t withdraw your money early. If you do, you’ll lose at least some of the interest, and some banks may take part of your principal, too.
5) Exchange Traded Funds (ETFs) – Medium Risk
Diversifying your portfolio is an easy way to lower your risk, and ETFs are some of the best investments to spread your money out.
An ETF, or exchange traded fund, is an investment option that owns a basket of underlying assets – like stocks, bonds, or commodities. These assets are typically chosen to create an index that mimics a particular market index or section of the market. The idea is that investors will see the same performance from the ETF as they see in the market (or a section of the market) as a whole.
Like mutual funds, ETFs provide instant diversification on your money. Since they’re made up of a bunch of different assets, your investment is automatically diversified, which tends to be a good strategy for lowering risk. Even better, places like Wealthfront and Betterment can help you find the right mix of ETFs and automate your investing for you.
Also like mutual funds, investors own shares in the ETF in which they invest. However, unlike mutual funds, ETFs are traded similarly to stocks on the market. ETFs also tend to charge far lower fees than mutual funds, which is something I can definitely get behind.
Again, there is certainly the potential to lose money on this. However, the instant diversification provided by an ETF (particularly ETFs that track the entire stock market) will hopefully help to mitigate those risks. Low-cost ETFs can be found at platforms like:
6) U.S. Treasury Securities
The U.S. government offers several types of investment options which are used to raise capital without raising taxes. These include things like T-Bills, treasury notes, bonds, and Treasury Inflation-Protected Securities.
The good news for you is that these securities can offer a higher return than what you may get with many CDs or money market accounts. Plus, they are considered to be some of the best low-risk investments around, provided you trust the full faith and credit of the U.S. government. However, your principal is no longer guaranteed if you sell a security before its maturity date.
Treasury Inflation-Protected Securities, or TIPS, are an interesting type of security that help protect your principal investment from inflation. These investments are backed by the U.S. government, and pay you a fixed interest rate that’s adjusted with the changing pace of inflation. With TIPS, you’ll also receive an interest payment twice a year.
7) Municipal Bonds
Governments issue municipal bonds, often called munis, when they need money at the state or local level. In general, investors usually assume a slightly higher risk with these bonds than with Treasuries, but they’re still a good option when it comes to low-risk investments. While not impossible, the chances of most municipalities going bankrupt are low. Plus, governments can raise taxes or sell new bonds to help cover the costs of the old ones, making this one of the best investments you can make.
The interest paid on municipal bonds is generally exempt from federal and state income taxes. So, when you combine the tax savings and higher returns, municipal bonds often provide higher realized rates of return than similar investments that are subject to income taxes.
In addition to buying individual bonds, exposure to municipal bonds can also be gained through the purchase of certain mutual funds and ETFs. Online investment platforms like Vanguard can help you get started.
8) Money Market Funds
While it’s important to remember that no investment is without risk, a money market fund is widely considered one of the safest investments available. They essentially operate as a type of mutual fund and are composed of liquid financial products with short maturities and high credit ratings. These assets often include short-term debt securities like CDs and U.S. Treasury Bills.
The goal of a money market fund is to provide investors with ongoing income while protecting their principal investment. Like with mutual funds, each investor owns shares. However, unlike a traditional mutual fund, money market funds attempt to keep their net asset value (NAV) at $1 per share. Interest on the investment is then paid out to shareholders as dividends. While there is no guarantee that you won’t lose your principal, that is pretty much the whole idea behind the account.
Remember, money market funds and money market accounts are two completely different investment options. Unlike money market accounts, money market funds are not FDIC insured. Instead, they’re regulated by the Securities and Exchange Commission (SEC).
If you think money market funds may be a good option for you, you can find them at investment platforms like Vanguard.
9) Pay Off Your Mortgage Early
Are you a homeowner looking for a relatively safe way to invest? Paying off your mortgage early could be one of the best investments you can make – especially if you live in an area where housing prices remain relatively stable.
Paying off your house early can do some really important things for you. First, it saves you some significant interest charges. For example, let’s say your current mortgage carries a 4% interest rate. Every dollar you pay beyond your monthly minimum payment should count toward lowering your principal balance. You’re effectively “earning” 4% on that money because it’s no longer subject to interest.
Additionally, knocking your mortgage out early eliminates a huge chunk of debt and a major monthly expense. You can use the additional cash flow to invest in other “riskier” endeavors that may produce a higher return. Things like investing more in the stock market, starting your own business, and learning how to invest in real estate suddenly become easier.
Owning your home free and clear reduces your risk in other ways, too. When you don’t owe the bank, you drastically reduce the chances of losing your house. If you get sick, fired, or experience any other major financial hardship, you just need enough money to keep the lights on and food on the table. It’s a ridiculously secure feeling, and it’s one of the things I love most about no longer having a mortgage.
If you decide to pay off your mortgage early, make sure your mortgage isn’t subject to prepayment penalties. In my opinion, it’s typically a good idea to continue investing in your retirement accounts while you’re doing this, too.
Shoot to save no less than 10% of your income in retirement every paycheck. If you can save 15-20%, that’s even better. At a bare minimum, be sure to meet any company match that is offered. That’s free money, and you don’t want to pass that up!
While many people consider this one of the safest investments you can make, keep in mind that none of these ideas come with zero risk. There’s always the chance that your home could drop in value or that you could lose money on the sale. However, if you plan to stay in your home for a long time, this is one of our favorite ways to invest money.
10) Credit Card Rewards
You’re probably wondering how credit card rewards made our list of low-risk investments. Although spending to save will never make you rich, spending on a credit card can come with some fairly nice perks. And, if you’re going to use a card anyway, why not take advantage of the benefits, right?
When it comes to cashing in on credit cards, it pays to focus on:
- Earning signup bonuses
- Earning rewards
- Earning cash back
Cash back credit cards typically reward your spending with straight cash back. Some cards even give up to 5% back just for using the card. If you use it to spend on the things you normally would anyway (like groceries, restaurants, daycare, or utility bills), you could earn a decent amount in cash back rewards.
Rewards cards typically provide points for your spending. Our favorite type of cards are travel rewards cards, but rewards points can usually be redeemed for gift cards, travel, cash, and more.
Even better, when you create a new account, both types of cards usually provide a signup bonus. These bonuses may be worth up to $500 in cash or more. Simply meet the minimum spending requirement, and you’re usually in luck. Here are a couple of our favorite cards:
Capital One Venture Card – Earn 60,000 points when you apply for the Capital One Venture Card and spend $3,000 on your card in the first 3 months. For reference, 60,000 points are worth up to $600 in free stuff – like travel, gift cards, and more.
Chase Freedom Unlimited Card – Earn a $200 signup bonus when you use the card to pay for only $500 in purchases during the first three months. (That’s practically free money, right?!?) Additionally, you’ll get an unlimited 5% cash back on travel purchases through the Chase portal, 3% cash back at restaurants and drugstores, and 1.5% cash back on everything else. You can also take advantage of a 0% APR on purchases made within the first 15 months of your account opening.
One final word of warning: It’s super important that you pay your card off every month so you don’t end up paying extra on interest charges. Trust us, the interest payments are usually far more expensive than any rewards or cash back you received. Also, don’t overspend to meet any points goals or signup bonus requirements. To make the most of your cards, simply use them to pay for the things you’d normally buy anyway.
11) Bank Bonuses
Bank bonuses are another way to cash in on high returns with low risk. Banks are always competing for your cash, and some will reward you with free money for opening a new checking or savings account. In fact, most of these signup bonuses are worth an extra few hundred dollars to new account holders.
There might be a few hoops to jump through, but it’s essentially free money. After you open your account, you might need to set up direct deposit, use your new debit card for a certain number of transactions, or keep your money there for six months or more. It’s usually pretty easy to qualify, and you don’t have to worry about losing any of your money (up to $250,000, of course) since it’s FDIC insured.
Be on the lookout for monthly maintenance fees, though, because some banks charge you if you don’t keep up with minimum balance requirements. Not all banks have these rules, but always check the costs before signing up for a checking or savings account bonus.
12) Peer-to-Peer Lending
Have you ever wondered what it’s like to be a lender? Peer-to-peer lending (P2P) gives you the opportunity to be one.
P2P lending is a little like owning your own bank, albeit without taking deposits from the public. In a nutshell, you lend your money to someone else who will (hopefully) pay you back. While it’s not a completely safe investment and it isn’t insured by the FDIC, many P2P lenders seek to minimize their risk by spreading small amounts of money over several loans at once.
Lending Club and Prosper are two websites that allow you to make personal loans to borrowers. Websites like Groundfloor help you cash in on the lending side for real estate deals. Decide which track you’d like to take, and get started right away.
13) Dividend-Paying Stocks – Medium Risk
Picking stocks isn’t easy, but you may be able to get more for your money by sticking with dividend-paying stocks.
A “dividend” is money that’s regularly paid by a company to you as a shareholder, and it’s usually dispersed quarterly. Since you’ll receive dividends and (hopefully) a return on your investment when you sell it, dividend-paying stocks are a great way to make money now and over the long-run. The ongoing income and capital appreciation of your investment also help reduce the adverse effects of inflation.
Dividends typically can be used to buy more stock in the same company with a dividend reinvestment plan, or DRIP. By using your dividend income to purchase additional stock, you’ll end up with more shares in your portfolio. Depending on your investment goals, it might make sense to take the dividend as income, but reinvesting dividends as part of your growth strategy may also work well for you.
Though they’ve gotten a bad reputation in the past, annuities can help bring long-term stability to your portfolio by providing a specific rate of guaranteed return. Upon maturity, annuities typically provide you with income that can last for the rest of your life.
Annuities come with either fixed or variable rates. With a fixed annuity, your money accumulates a guaranteed interest rate for a specific period of time. By contrast, a variable annuity has a return that’s tied to an investment portfolio, and it fluctuates with the market. There’s more certainty with a fixed annuity, but the earning potential isn’t typically as high as you’d find with a variable rate.
Even though annuities can be a good long-term savings solution, they’re actually an insurance contract. Since they’re an insurance product, they’re sold by insurance companies. This means they often come with some relatively hefty commissions, depending on the product. Additional fees could further increase your costs and lower your overall investment return.
With the recent market volatility and the disappearance of workplace pensions, annuities can be a great addition to a retirement portfolio. Some conservative investors think this the best way to invest money since you won’t lose a substantial amount if the annuity isn’t managed well. Plus, the expected income, whether it’s based on a fixed or variable rate, can bring peace of mind by providing a guaranteed income each month.
Of course, that guarantee is based on the health of the company where you bought the annuity. Just like with most insurance policies, you may be stuck if the company goes out of business. Even with that risk, however, many people believe annuities are relatively safe investments that can bring stability to their portfolios.
15) Preferred Stocks – Medium Risk
Owning preferred stock may be another way that you can add additional stability to your portfolio.
Preferred stock is different from common stock, and it typically trades far less frequently. With common stock, you typically make the most money when you sell your shares, and you’re never sure what kind of return you’ll get since the price depends on market value. Preferred stock still provides ownership in a company, but it typically pays out guaranteed dividends that are usually higher than those paid to common stockholders.
With preferred stock, you also have a higher claim on the company’s earnings and assets than with common stock. This is essential when the company falls on bad times. If a company suspends its dividends entirely, your preferred stock will be paid dividends in arrears before any is paid to common stockholders.
Though generally considered to have less risk than common stock, you may be able to further reduce your risk by including some diversity in your preferred stock portfolio. Preferred stocks can usually be traded at your favorite online investment brokers.
16) Stable Value Funds
With a core goal of providing stable returns even during tough economic times, stable value funds are one of the best low-risk investments available. Unlike many other investments, they don’t grow over time. Instead, like money market funds, their value remains stable.
Stable value funds are made up of investment contracts that are designed to guard your capital against significant variations in interest rates. Their holdings typically include short and medium-term government and corporate bonds.
Since they typically hold bonds with a longer maturity date than money market funds, stable value funds are often able to provide higher interest rates. Stable value funds are also insured, protecting investors from losing both their principal and interest.
Overall, stable value funds are fairly low-risk investments that come with a diversified portfolio of high-quality investments. With the contracts from banks and insurance companies helping to protect your capital against drops in interest rates, these are generally considered to be relatively safe investments. You can often find these funds as an option with company sponsored retirement plans like a 401(k).
When it comes to investing, higher risk is often associated with higher performance. However, if your goal is to keep as much of your original principal as possible, low-risk investments are sure to make you smile.
When it comes to low-risk investments, there’s a lot to choose from on this list. Some of them – like high-yield savings accounts, money market accounts, and CDs – even guarantee your initial principal so you won’t lose money. While they aren’t technically investments, even credit card rewards and bank signup bonuses are low-risk options that can result in some free money back in your pocket!
From scoring free cash with credit card rewards to earning low-risk returns, investing your money doesn’t get any easier than this. Thanks so much for reading and good luck!
Do you invest in any of the above methods? Share your experiences below!