10 of the Best Low-Risk Investments in March 2024
When the markets are volatile, many investors look for low-risk investments so they can keep more of their hard-earned money. People who talk about low-risk investments typically mean those investment vehicles in which you will lose none, or very little, of your investment. If you’re looking to reduce your risk, read on.
Check Out: 3 Things You Must Do When Your Savings Reach $50,000
10 of the Best Low-Risk Investments
Low-risk investments may not earn much in terms of return, but most or all of your principal will be intact. Here are some low-risk investments to consider right now:
High-yield savings accounts
Money market accounts
Certificates of deposit
Series I savings bonds
Treasury bills, notes and bonds
Fixed annuities
Corporate bonds
Preferred stocks
Money market funds
Dividend-paying stocks
1. High-Yield Savings Accounts
A high-yield savings account is a risk-free place to put some money. You’ll usually find the best rates at online banks, which pay annual percentage rates that are several times higher than the APRs many traditional banks offer. That makes HYSAs a good choice for an emergency fund, savings toward a major purchase or even a no-commitment way to grow your wealth.
2. Money Market Accounts
A money market account is a type of savings account with some of the same features as a checking account. MMAs allow limited check writing, for example, and they often come with a debit card. MMAs, like savings accounts, are typically insured up to $250,000 per depositor, per financial institution, so you don’t have to worry about losing your money in the event of a bank or credit union failure.
MMA interest rates are competitive with savings account rates. That means an MMA won’t get you a huge return on your investment. However, it can still be a good and risk-free way to grow your money.
3. Certificates of Deposit
Certificates of deposit offer a fixed rate for a specific period of time, called a term. You’ll often find the best rates on terms of around 12 months, but it’s a good idea to take interest rate trends into account. When rates are rising, select a shorter term to avoid being locked in for too long. When rates are falling, select a longer term instead.
It’s important to make sure you won’t need the money before the CD matures. Early withdrawals usually result in a penalty of some or all of your interest.
4. Series I Savings Bonds
Series I savings bonds are one of the safest investments you can make because they’re backed by the full faith and credit of the U.S. government. The bonds earn interest in two ways: with a fixed rate, and with a variable rate that changes every six months, moving up or down with inflation rates — which makes Series I bonds a good hedge against inflation. They pay interest every month over the 30-year term.
Another benefit of Series I bonds is that you can cash them in as early as one year from the date you purchased them, but you’ll lose three months of interest if you cash them in before five years have passed.
5. Treasury Bills, Notes and Bonds
When you buy U.S. Treasury bonds, notes and bills, you’re essentially loaning the government money, and in return, you earn interest on your investment.
Treasury bills are short-term securities with a minimum term of four weeks and a maximum term of one year.
You buy Treasury bills in $100 increments, at less than face value, and once they mature, you redeem them for face value. For example, you might buy a one-year Treasury bill with a face value of $100 for $95. A year later, it matures and you get $100. Your interest is the difference between the price you paid and the face value.
Treasury bonds and notes work a little differently. Treasury notes have a maturity of between two and 10 years, and Treasury bonds have a maturity of more than 10 years. They pay a fixed rate of interest twice a year, and at maturity, they pay the face, or par, value.
As with Series I savings bonds, Treasury bills, notes and bonds are backed by the U.S. government, so they’re about as safe an investment as you can make. What’s more, you won’t pay state or local income tax on the interest they earn.
6. Fixed Annuities
Technically speaking, annuities are insurance policies, not investments, but investors purchase them to guarantee a certain level of income in retirement. The U.S. Securities and Exchange Commission describes an annuity as a contract between you and an insurance company whereby you make a lump-sum payment or a series of payments. In return, the insurance company agrees to make periodic payments to you. These can begin immediately or on some future date and will continue for a specific amount of time — 10 years, 20 years or your lifetime, for example.
A fixed annuity has a specific interest rate, and the insurer must pay you at least that rate while your account grows. The period payment amount and frequency are also determined in advance. The interest and payment amounts specified in your contract are guaranteed as long as you hold the annuity to maturity.
Fixed-rate annuities are the lowest-risk annuity type, so they generally offer the lowest returns. However, you can earn more than the minimum if the insurer’s investments perform better than expected. And if they don’t, the insurer absorbs the loss. Either way, annuities provide predictable, guaranteed income during your retirement, with next to no risk of losing the money you invest.
7. Corporate Bonds
Corporate bonds are similar to Treasury bonds in that they’re debt instruments used to raise cash. But unlike Treasury bonds, corporate bonds don’t have government backing — they’re issued by companies. They’re riskier than U.S. bonds because companies are more likely than the U.S. government to go belly up. However, corporate bonds are safer than stocks because bondholders get paid before stockholders in the event a company does fail.
Corporate bonds are issued with a face value, or par value, which is the amount you receive when the bond matures. The par value is typically $1,000, but the bond may sell for more or less than that amount.
Bonds also have a maturity, which is the amount of time before the bond comes due, and a coupon rate, which is the rate of interest the corporation will pay the bondholder during the term of the bond. Interest is paid every six months.
A bond can sell at, above or below its par value, but the investor can compare bonds by looking at the yield to maturity. This is the annual return on the bond’s face value if you hold it to maturity, and it’s calculated using a formula that takes into account the coupon rate, the face value, the price you paid and the maturity.
Here’s an example:
If you pay $1,000 for a $1,000 bond that matures in 10 years and has a coupon rate of 4.00%, you’ll get $40 in interest every year. It will be paid as $20 every six months because bond interest is paid twice a year.
Because the bond was sold at par value, the yield to maturity is 4%, equal to the coupon rate.
Had you paid $900 for the bond, you’d still receive 4.00% interest each year, but because you bought the bond at a discount, the yield is higher — 5.31% in this case.
On the other hand, if you pay $1,100 for that bond, your yield to maturity will be 2.84%. You’ll get the same $40 in interest each year, and you’ll get $1,000 at maturity, but you paid more for the bond when you got it, so your yield is lower.
It’s important to remember that the twice-yearly interest payments are reinvested at the current interest rate, which might change from one payment to the next. Some experts recommend laddering your bonds — purchasing several bonds with different maturity dates — to help mitigate those fluctuations.
8. Preferred Stocks
Companies can issue two types of stock. Common stock gives the investor voting rights and variable dividends. Preferred stock does not give the investor voting rights, but they receive fixed dividend payments and can convert their preferred shares to common shares later.
Unlike common stocks, preferred stocks are similar to bonds as they make a regular cash payout. It is good to note that in some cases, companies that have issued this type of stock can suspend dividends in order to make up any missed payments. However, the company then has to pay dividends on preferred stocks before paying them to other common stockholders.
On the risk-tolerance scale, preferred stocks fall between the safety of a bond and the higher risk of a regular stock. Essentially if you have preferred stock, you get paid after bondholders but before stockholders, which can work out in your favor depending on the state of the market.
9. Money Market Funds
Money market funds differ from money market accounts in that they are pools of CDs, short-term bonds and other low-risk investments grouped together. This helps to diversify not only your portfolio but also the amount of risk you’re taking.
These funds are liquid, which means you can generally access your money without penalization. However, the value per share can be quite low, and you might have to pay fees. And unlike money market accounts, money market funds are not FDIC insured.
10. Dividend-Paying Stocks
Sure, stocks are always riskier than keeping your cash in a shoebox under your bed, but that cash never has a chance to grow as a dividend-paying stock could. They are also considered safer than high-growth stocks as they pay cash dividends. Though this does lessen the risk volatility, it does not get rid of it, as it will still fluctuate with the state of the market.
You can reduce the risk of dividend stocks by investing in larger companies with strong track records of paying dividends. Some of the best are Dividend Aristocrats — S&P 500 companies that have increased their dividends each year for at least 25 years.
Is There Any Investment That Is Free of Risk?
If you ask a group of people this question, some of them might say, “Cash in the bank” or “Put it in the mattress.” But even that is not entirely free of risk. You’re still exposed to inflation risk, for example, which is the risk that inflation will grow faster than the interest or other gains you earn on your investment. While you may not see your balance decline, your real purchasing power is being eroded.
Here’s an example:
Suppose you have $1,000 in a savings account earning 2% interest.
After a year, you’ll have $1,020.
But if the cost of groceries has risen, even from $100 to $103 per week, you’ve lost buying power.
The best low-risk investment for you is the one that helps you sleep at night. If you’re lying awake worrying that you’ll lose money, it’s time to move to lower-risk investments.
Final Take To GO
The bottom line is that safety isn’t always guaranteed as investing is all about risk, so the safer the investment, the lower the return. As an investor, it’s important to understand how much risk you’re willing to take. You also need to think about whether you might need access to your money.
If you do not want to lose a penny of principal under any circumstances, and you want to be able to withdraw money when you need it, look for the highest money market or savings account rate you can find.
Daria Uhlig and Caitlyn Moorhead contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: 10 of the Best Low-Risk Investments in March 2024
