When the market turns into a rollercoaster, you may start to look for low-risk investments to combat inflation or prepare yourself for when the federal government changes interest rates. So what are low-risk investments? And which are the best? Let’s find out!
Quick Overview
- What Are Low-Risk Investments?
- Best Low-Risk Investments
- Build Your Wealth With Low-Risk Investments
What Are Low-Risk Investments?
Low-risk investments are investments that minimize financial loss when the market is volatile. Note that any investment possesses some risk and does not guarantee returns, even if it’s considered low risk.
Best Low-Risk Investments
Many low-risk investments are similar, but each is unique and has pros and cons. You’ll need to consider which one is best for you, your risk tolerance, and when you’ll need your money. It is also wise to diversify your investments to minimize risk.
1. Low-Risk Index Funds
A low-risk index fund is an investment that follows a top-performing index (comprised of stocks and bonds) such as the S&P 500. This strategy makes it easy for beginners to start investing and building a well-diversified portfolio for a low cost.
Index funds also tend to perform well, receiving high returns over the long term.
2. Low-Risk ETF Funds
An exchange-traded fund (ETF) is similar to an index fund in that it is also a low-risk and low-cost investment. Unlike index funds, however, ETFs can be traded throughout the day and have tax advantages.
3. High-Yield Savings Account
You could argue that a high-yield savings account like PrizePool is not an investment. However, it is one of the easiest ways to grow your money and earn. The downside is that interest rates won’t keep up with inflation.
Your deposits are held with Evolve Bank & Trust, Member FDIC. So even if the bank that holds your deposit fails, the federal government will reimburse you up to that amount (up to $250,000).
We’re also going to argue why PrizePool should be your top choice!
You don’t have to pay money that you might lose (unlike the lottery if you don’t win). Plus, any prize that you win is yours. It’s the perfect way to boost your savings in a fun yet safe approach. You can learn more about our app by checking out this blog post.
4. Real Estate
Is real estate a low-risk investment? Most consider real estate low risk since it’s an excellent hedge against inflation, bringing high returns if held for the long term. Yet there is still some risk associated with this investment.
As an investor, you will need to find the right location. Real estate also comes with some negatives: There is a high entry cost, and selling is not immediate. It takes time to liquidate your assets.
5. Certificates of Deposit (CDs)
If you want a guaranteed interest rate over a specific amount of time, a Certificate of Deposit (CDs) will likely be your choice. You can set terms for anywhere between 3 months to 10 years.
CDs allow you to set aside money for an expensive trip or purchase you’re planning on in the next couple of months or several years. Some financial institutions have penalties for early withdrawals, so keep this in mind.
6. Bonds
Bonds are a loan that you give to a corporation or government with the expectation that you’ll get it all back with interest added. Bonds are safe, low-risk investments that help balance or lower the risks associated with stocks.
Some bonds, like municipal bonds, have tax benefits such as not having to pay federal taxes on earned interest.
The downside is that they don’t earn as much interest as stocks do and may have long lock-up periods.
7. Money Market Funds
A money market fund is an investment strategy that takes your money and invests it into low-risk, short-term debt securities that are easy to liquidate. However, the returns are not the highest, and your funds are not insured.
Build Your Wealth With Low-Risk Investments
Even though these investment strategies don’t offer the highest return, they can still help you protect and build your wealth when the market fluctuates. Let us know if you have further questions!