As everything’s getting more expensive than 10 years ago, it makes sense that we should invest. And when we invest our hard-earned money, we obviously want low risk investments that generate high returns.
In terms of returns, there are low risk investments than others. But it is absolutely true that the higher return you want, the more risk you have to take. And balancing risks against returns is always an important factor when making an investment.
Read more about the 10 Types of Investment Risk.
High returns are attractive. But life factors, such as retirement, college fees, and illness, are not desirable for investments with high risks. In these cases, what you need are low risk investments.
Read more about 5 Critical Retirement Mistakes You should Avoid.
These low risk investments won’t give you higher returns. However, you have a bigger buffer against damaging your principal. Remember, while no investments are risk-free, you can decide wisely on which low risk investments that are right for you.
Here are 5 low risk investments that offer high returns.
US Saving Bonds
The United States Federal government backs US Saving Bonds. Meaning, the likelihood of default on this debt is very tiny which makes them a very stable investment.
The Treasury sells two types of savings bonds. The EE bond and I bond, both of which offer fixed interest rates. On Series I bonds, the inflation rate is adjusted every six months, which can be good or bad depending on the economy. With the Series EE bonds, the Treasury guarantees the bond will double in value if held to maturity, which is 20 years.
This is one of the safest low risk investments. When a government at the state needs money to borrow money, the government entity issues a municipal bond. These bonds are exempt from Federal income tax. These make them a smart investment for people who want to minimize their exposure to taxes.
The average yield of this kind of bond is 1.8%.
Certificates of Deposit (CD)
CDs are definitely low risk investments. They are almost loss-free since they are as much a deposit as they are an investment.
With a CD, you deposit your money for a specific length of time. In exchange, a guaranteed return on your money no matter what happens to the interest rates during that time.
Some savings accounts pay higher rates of interest than some CDs, but those high-yield CDs usually require a large deposit.
Additionally, if you remove funds from a CD early, you can lose some of the interest you earned. Some banks also give you a loss of principal as well. That is why it’s important to read the rules before opening a CD.
Dividend Paying Stocks and Mutual Funds
The easiest ways to get a bit more return out of your stock investments is to target stocks or mutual funds that have dividend payouts. In addition, stocks that pay dividends are generally treated as low risk investments.
Picking individual stocks is easier said than done. It comes with a risk that the company may crash, taking your investment down with it. However, a safer bet is to invest in a dividend stock mutual fund. This way, the fund company targets stocks that pay nice dividends, while doing all the work for you.
Read more about How to Choose the Best Stock to Trade, and Different Types of Stocks and their Classification.
Annuities are for conservative retirement savers who want higher yields with safety of principal. To buy an annuity, you’re basically making a trade with an insurance company. They take a huge amount of cash from you, and in return, they give you a stated rate of guaranteed return. The tax on your investment is deferred until retirement.
If you can’t afford to lose money in your situation, it’s important to reduce your risk as much as possible. These 5 low risk investments can help you achieve this goal. But remember that you have to read the terms and agreement first, as well as educate yourself on these investments.
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