Allocating your funds is one of the most crucial aspects of learning to organize your finances. If you don’t invest, you may not be able to live the retirement life you want, buy a house, or even purchase a car.
Investing is essential, and you have to understand all your alternatives before making decisions. There are more convenient options depending on your goals, risk tolerance, and more.
Challenging financial times can change the way you see your assets. At the same time, world crises could make you have an entirely different perspective on money.
Investing is a very convenient alternative because it could allow you to build wealth. When financial hardships arise, you’ll have several options to rely on and feel much safer.
There are some alternatives that benefit people who need to work on their retirement funds. Other options could help if you know you’ll need the money in a shorter time; for example, in a year.
This article discusses the safest investment alternatives, what they consist of, and who they may benefit depending on the person’s goals, risk tolerance, needs, and more.
Depending on how much risk you’re willing to take, different scenarios could play out.
No risk scenarios allow you to protect all your money. In other words, you won’t lose a cent.
If there’s some risk involved, it’s safe to say that you’ll lose some money over time.
However, there are two catches. With low-risk investments, you’ll earn lower returns.
Even so, inflation can affect the purchasing power of the money you stash with low-risk investments. Therefore, the option you choose depends on what suits your needs the best.
If you’re opting for low-risk investments, you’ll likely lose purchasing power as time goes on.
On a short-term basis, low-risk investments are very convenient because there are fewer chances of you losing purchasing power. You also probably won’t have to stash your emergency fund.
Alternatively, higher-risk investments will give you higher returns in the long run.
The Best Low-risk Investments
Even though there are numerous investment alternatives out there, some have fewer risks. These are very convenient if you want to play it out safely and guarantee that you lose little money or none at all.
Gold and Silver
Silver and gold have been prized assets for centuries. The idea of them being precious metals has not changed in the modern era, and they not only still hold value but also perform well during economic challenges and depressions.
Why You Should Invest in Gold and Silver
Nowadays, buying gold and silver is the most convenient option if you’re looking for low-risk investments. Here are some reasons why:
They’re the Safest Alternative
The economy is struggling after the banks’ collapse. Many people are worried that they’ll lose their money or that it won’t be worth the same, particularly if a recession occurs.
However, a way to protect yourself against troubling times is by buying gold and silver. Since they’re low-risk investments, you’ll lose little money even in the long run, and you’ll be able to protect your assets because you’ll get returns.
Gold and silver have been valuable precious metals since hundreds of years ago, and they have historically performed well, even in the worst economic times. Therefore, it’s safe to say that they’ll continue to be a fantastic alternative.
They’re in High Demand
Most industries will always consider gold and silver as prized possessions, so they’ll never stop being in high demand.
Even though the mining industry is dwindling as the world evolves, gold and silver are still valuable for different industries, for example, fashion.
Plus, other industries value gold and silver more than ever before because they’re not like other low-risk investments. There’s a degree of uncertainty that comes with some financial transactions, but it’s not the same when you buy these precious metals since they’ll always be valuable.
They Have a Universal Value
Gold and silver are precious metals, regardless of where you are. In other words, they’re valuable everywhere, making them the ideal investment if you want something beneficial no matter your location.
You’ll get a sense of financial security if you invest in gold and silver because they’ll be valuable even if you move elsewhere.
They’re the Best Option, Even Better Than a Money Market Account
Compared to other low-risk investments, they’re the safest option. When it comes to other alternatives, such as money market accounts, there’s a risk of losing purchasing power over time.
With gold and silver, you most likely won’t lose purchasing power because they’ll continue to be precious metals. If their price drops at some point, it will rise again, especially during economic hardships, recessions, or depressions. Therefore, you’ll be safe during the most challenging times.
They’re Not Susceptible to Inflation
The value of gold and silver doesn’t change with inflation. On the contrary, historical analyses have shown that these precious metals perform well even if nations’ currencies’ price increases or decreases.
Although most physical assets depreciate with time, when it comes to gold and silver, it’s different because they either appreciate or retain the same value. Also, they’re much more stable when there are worldwide crises, such as wars or pandemics.
High Liquidity Rate
Compared to other investments, gold and silver have high liquidity. Since they’re valuable to most industries, converting them to cash is straightforward. You can do it quickly.
Plus, unfavorable economic tides could siphon the cash you get with other investments. However, it doesn’t happen like that with gold and silver.
They’re a Highly Valued Physical Possession
A way to protect your low-risk investments against a market crash, internet fraud, blackouts, and other catastrophic occurrences is by putting your money in highly-valued, physical possessions.
If you ever need to move out or wish to relocate, you can take your gold and silver with you. Overall, as long as you keep them safe, investing in these precious metals is a very convenient option because of their physical value.
High-yield Savings Accounts
They’re technically not low-risk investments, but savings accounts can give you a modest return on your money.
People don’t think of savings accounts as investments because you’re technically not putting your money in them with the goal of getting returns.
Instead, you’re using the accounts to save your assets. If you look online, you’ll find savings accounts with high-yield options.
Plus, if you’re willing to shop around and check out the tables, you’ll probably find even better alternatives.
Overall, savings accounts are safe because you’ll never lose money. The government insures most of them for up to $250,000 per bank, so even if the financial institution fails, you’ll receive compensation.
However, there is also a risk when it comes to savings accounts. Even though cash won’t lose dollar value, inflation can affect its purchasing power.
Series I Savings Bonds
A Series I savings bond is a low-risk investment that protects your finances because it adjusts to inflation.
When inflation increases, the interest payments of the bond will change too, going upwards.
However, when inflation decreases, the bond’s interest rates will drop too. If you want, you can buy a Series I bond from the US Department of Treasury.
McKayla Braden, former senior Department of Treasury Advisor, said that the I bond is a fantastic alternative to protect yourself against inflation. You’ll be able to get a fixed rate and an inflation rate every six months.
Depending on inflation, the Series I bond will annually change its rate.
Therefore, it will pay a sizable yield whenever inflation levels are high. If it continues to rise, the amount you get increases as well.
Overall, bonds allow you to protect yourself against ravaging increasing prices, which can be a catastrophe for your finances.
However, the downside of bonds is that interest payments will fall if inflation drops too. Even so, they’re as safe as you can get with low-risk investments because the US government backs them.
Short-term Certificates of Deposit
Bank short-term certificates of deposit, also known as CDs, are some of the best low-risk investments to consider too. They’re loss-proof unless you choose to take out your money early.
Interest rates have risen for a while, so owing short-term CDs and reinvesting as time goes on could be a fantastic alternative.
Even though high-yield savings accounts, mutual funds, or corporate bonds are convenient options for some people, others consider short-term CDs as the ideal option because they can reinvest them as interest rates rise again.
When you open a certificate of deposit, you must select a term. It’s the amount of time that the money will stay in the account.
If you choose a one-year term for your CD, for example, you’re promising the bank that your money will stay there for that long.
After the term ends, you can either withdraw your funds or renew the CD. Remember that choosing how long your money will stay there is essential because the longer it does, the heftier stiff penalty fees will be if you pick an early withdrawal.
You should avoid being locked in a below-market CD for too long. However, the good thing about this type of low-risk investment is that you have other alternatives.
If you want, you can choose a no-penalty CD, which lets you avoid the typical withdrawal fee. Therefore, you could take your money out and move it into a higher-paying certificate of deposit without paying anything.
Once you manage to leave your CD intact until the end of the term, the bank promises to pay you a specific set of interests over a specified term.
Nonetheless, if you choose an early removal of your CD funds, you’ll probably lose some of the interest you earned.
Plus, some banks also penalize you with a loss of principal. Therefore, checking all the rules is essential before you invest.
Additionally, if you lock yourself in a long-term CD and overall rates rise, you’ll earn a low yield. You’ll have to cancel the certificate of deposit and pay a fee to earn the market rate.
Opening a CD means you have some financial flexibility. Oftentimes, banks reward you for that by offering you better interest rates than with a regular savings account.
CDs offer you less access and flexibility when it comes to your money, so they’re a good low-risk investment if you need to save funds for a particular goal and have an idea of when you’ll need them. If you need something that’ll give you quick access, an emergency fund may be better.
The bank will give you some time to make changes to your account after the CD matures. The grace period is usually from five to 10 days during which you can withdraw money or make additional deposits.
Money Market Funds
Short-term bonds, CDs, and other low-risk investments make up money market funds.
You’ll usually be able to buy money market funds with brokerage firms and mutual fund organizations. They’re available to people who want to diversify risk.
The Securities and Exchange Commission regulates money market funds, and there are a few types depending on the security the fund is investing in:
Government and treasury funds, which invest in government-backed cash and securities, for example, US Treasury bills.
Prime funds, which invest in commercial paper and floating-rate debt that US government agencies, companies, and government-sponsored enterprises issue.
Tax-exempt funds, which typically consist of municipal bonds and are exempt from federal income taxes. In some cases, you may not have to pay state taxes either.
People who are particularly keen on getting low-risk investments and protecting their nest eggs may find that money market funds meet their needs.
With market funds, you’ll most likely be able to generate a return over what a traditional bank savings account offers you. Plus, they’re significantly less volatile than stocks.
At the same time, you can write checks and make money transfers with money market stocks. However, keep in mind that most accounts set a specific amount for checks. You’ll have to see if your institution imposes a fee after several withdrawals if your balance drops below a certain level.
You may even get tax benefits if your funds hold municipal securities that are exempted from state and federal taxes.
Furthermore, a money market fund is relatively safe because it’s a low-risk investment with short-term maturities. However, the downside of it is that you won’t get high returns off it, and in many cases, you may not be able to outpace inflation.
The FDIC also doesn’t insure funds, so there is some risk, but historically, it hasn’t been significant. You’ll soon notice that the risk is worth it because this option pays better than most savings accounts.
Overall, money market funds are fantastic low-risk investments if you’re looking to save money for your retirement or just to have something to rely on during a rainy day.
Treasury Bills, Notes, Bonds, and TIPS
The US Treasury issues bills, notes, bonds, and Treasury inflation-protected securities, also known as TIPS.
You can buy Treasury inflation-protected securities and other US government-issued securities directly from the Treasury, a broker, or a bank.
This alternative is a fantastic option for people who need a safety net. If you’re looking to protect your funds, Treasurys might be for you.
Oftentimes, you’ll see people fly to the safety of Treasurys when the stock market crashes. They’re also a fantastic alternative to diversify your portfolio if you’ve mostly invested in other options.
Treasurys are even safer than high-yield savings accounts, and people who choose them are usually looking to reduce risks and smoothen their returns instead of increasing them.
There is no risk of the government not paying you back with Treasurys. However, there are other dangers: interest rates and inflation.
Treasury bonds are relatively safe, but inflation can erode your returns over the years. When you get the money, it won’t be as valuable as 20 or 30 years earlier.
When it comes to interest, it’s even more challenging because your bond’s price will decline if rates rise. It may not be so problematic if you don’t have to sell the Treasury before maturity, but if you want or need to, you won’t be able to do so at face value.
Defining whether or not Treasurys are a convenient low-risk investment depends on your financial situation.
If you’re saving to achieve long-term financial goals or to make sure you have the peaceful retirement you want, Treasurys may not be the best fit because they won’t give you high returns or even outpace inflation.
However, Treasury bonds could be a convenient alternative if you want the safety of the US government backing up the financial transaction.
Companies issue bonds as well, and they can come in low-risk varieties. Even though there are high-risk options as well, this list only focuses on the safest alternatives.
You’ll have to deal with interest rates if you’re buying bonds, and these come in two major types: floating and fixed rates.
When you get a fixed-rate bond, you’ll pay interest depending on a specific rate.
However, payments can fluctuate if you get a floating-rate bond, and it will depend on the prevailing interest rate environment.
With corporate bonds, you’ll usually pay rates on a specific schedule. It’s often semi-annually, though in some cases, it could be quarterly or annually. Furthermore, the payment’s name is ‘coupon,’ and its terms won’t change except for the details you agreed on in the terms of the bond.
One risk to gauge with corporate bonds is that the corporation you work with may be unable to pay rates. If this occurs, the company is in default, which could trigger it to eventually declare bankruptcy. Consequently, you may be left with nothing from the investment, although it depends on the organization’s indebtedness.
Overall, corporate bonds offer many rewards, but they also have other dangers. Take a look:
You get a high certainty of income with corporate bonds because they make regular cash payments, which is not possible with stocks and other types of investments.
Corporate bonds are much less volatile than other alternatives, such as stocks.
They may have a higher return rate than a high-yield savings account, which is fantastic if you want to build your wealth in the long run.
Corporate bonds can yield more than government-issued ones.
You get access to a secondary market, so you can achieve liquidity for your holdings. It’s not possible with a high-yield savings account or a bank CD.
With bonds, you always know how much you’re going to get, and the price won’t increase over time.
Buying corporate bonds is riskier than getting them from the government.
Bond prices still fluctuate even though they’re not as volatile as the stock market. If you want to sell them, there’s no guarantee that you’ll get your money back.
You have to spend some time analyzing the market if you’re buying bonds because you must consider the company’s ability to pay you back.
Bonds don’t have insurance like CDs, so you may lose your principal.
Stocks are the less safe option compared to high-yield savings accounts, bonds, and any other alternative on this list, especially precious metals.
However, dividend stocks are safer than high-growth ones because they pay in parts or dividends, reducing volatility.
If you buy dividend stocks, you’ll have to suffer the consequences of them falling when the market does. Nonetheless, they won’t suffer that much during challenging economic times.
Investing in dividend stocks is not that different from putting your money in any other stock. You need an online broker to set up your brokerage account, and after that, you’ll be able to place a trade.
Once you set up and fund your account, you can choose the stocks you want to invest in.
Overall, dividend stocks are one of the best low-risk investments because they will give you a higher return rate than other alternatives, such as a classic high-yield savings account, but they’ll still be safer than traditional stocks.
If you’re working with a good broker, they can help you identify the best dividend stocks to achieve your financial goals.
Most experts don’t think dividend stocks are free of risk. However, they are safer than growth stocks.
With this alternative, you’re not only depending on the stock’s value but also getting regular income from it.
Nonetheless, if the company goes through challenging times and declares a loss, the stock’s price will suffer since the corporation may have to trim or entirely eliminate the dividend.
Stocks and bonds come together with preferred stocks. The features of this alternative provide some investors with specific benefits, but they also have some caveats that you should remember before buying.
At first sight, preferred stocks are more like a bond than anything else: they have a face value, a fixed maturity date, and pay a contractual dividend.
However, unlike bonds, preferred stocks may skip the dividend payments depending on the time. In some cases, the stocks may be perpetual, which means they don’t have a maturity date.
As with all investments, deciding whether or not preferred stocks are for you depends on how much risk you’re willing to assume. This alternative works well for people who want high yields and the potential for more dividends than with common shares.
In other words, preferred stocks are safer than common stocks but riskier than bonds.
This alternative is also convenient if you don’t want the volatility that comes with common stocks, but you’re still looking for decent returns.
Plus, if you purchase the stock at a considerable discount to par value, you’ll get more appreciation potential. Nonetheless, you need to know how to find those opportunities.
Money Market Accounts
A money market account could feel similar to high-yield savings accounts, and it’s because they share many features.
However, money market accounts share features with checking accounts too. Overall, they’re a safe place to store your money, and they can be one of the best low-risk investments to incorporate into your portfolio.
Money market accounts are interest-bearing accounts that you can open in credit unions and banks. If you’re looking for an option with federal insurance and a predictable yield, this may be the alternative for you.
Plus, they support more alternatives to withdraw money than high-yield savings accounts. They usually have a withdrawal limit of six times per month, so keep that in mind before you start getting your funds. To know for sure, check the rules and regulations with your chosen financial institution.
One of the advantages of money market accounts is that you can earn interest with them. They pay from three to four percent per year, which is a significant increase.
Furthermore, your deposits have insurance. Therefore, your assets will be safe, even if the financial institution fails.
Physical checks or a card are often an option with these accounts, so cash is always available if you want to withdraw funds.
However, to open one of these accounts, you’ll have to make a larger minimum deposit than you would if you opened a traditional high-yield savings account.
Moreover, if you want a significant yield, you may want to look into other options, such as stocks, bonds, or even certificates of deposit. Even though money market accounts offer good returns, some people want more.
You can move money from your account more freely, especially compared to savings accounts. Even so, there are still some restrictions, such as the number of times you can make transactions.
A fixed annuity is one of the most popular ways to secure income for your retirement. If you’re looking for the best low-risk investments that help you plan for your future, this option could be the ideal one for you.
The primary advantage of annuities is that they give you a specific amount of income. Some pay it over a certain period, and others continue to give you money for the rest of your life.
To understand what fixed annuities are, you must know the basics since they’re just one type among the many available.
An annuity is a contract. You usually make it with an insurance company, give them money upfront, and the corporation agrees to pay you back over a certain amount of time.
The annuity can have a different structure depending on your needs and on what you negotiate with the insurance company. While some have a specific amount of time in which you get the payments (for example, 20 years), others allow you to get the money until you die.
Compared to other alternatives on this list, the appeal of annuities is that you’ll get a fixed income. In some cases, you may also get other features, such as death benefits that work like life insurance in case you die.
Fixed annuities allow clients to contribute money in one lump sum or during their lives while they’re working.
Overall, their primary advantage is that you get a guaranteed income. You can also make unlimited contributions, which is very convenient, and build your wealth in a tax-deferred account.
How to Choose the Best Low-risk Investments for Your Portfolio
There are many options when it comes to choosing the best low-risk investments for your portfolio. However, picking the most convenient ones takes time and effort because you have to evaluate different factors before deciding.
Firstly, you need to make a plan. If you want to save money to increase returns and withdraw funds on a short-term basis, short-term certificates of deposit may be the best alternative. You can use them to put some of your funds away and build some wealth, and when they reach maturity, you can take them out.
Short-term certificates of deposit are a fantastic option if you have a very specific goal that you want to achieve soon, for example, buying a car or making your first payment for a house.
However, your plan could be completely different. If you want to make sure that your retirement years are peaceful and enjoyable, you’ll probably want an alternative that can withstand the ups and downs of the economic world and that can stay safe even when inflation hits.
In this case, precious metals, specifically gold and silver, are the safest bet. You can store them in a safe deposit, and whenever you need, get cash for them or use them to invest in other options.
Once you have a plan, you must know your timeline. Generally, regardless of the investment alternative you pick, you’ll have to be able to not touch the funds you put there.
Therefore, you must choose a specific amount of time. If you talk to other investors about this, they’ll probably cite ‘the snowball effect,’ which is the ability to leave your investments untouched for several years as you accumulate wealth.
You’ll soon notice that most successful investors started while they were young. However, if you have very specific goals, it doesn’t matter how old you are if you stick to them and make sure you don’t withdraw money from your investments for the longest time possible.
After knowing your timeline, the fun part begins. You’ll have to allocate your assets, which means that it’s time to choose what you’ll invest in.
You have to look at your assets as a whole and imagine you’re splitting them into different parts as if they were a pizza or a pie. Then, choose different investment alternatives and work on them one by one.
The key to having the best results as an investor is to diversify your portfolio as much as you can. If you invest in precious metals, for example, you could also go with other safe alternatives, such as Treasurys.
However, keep in mind that knowing how to allocate your funds takes time as well. To understand it, you need to know your risk tolerance.
If pursuing aggressive short-term growth keeps you up at night, going for stocks may be the best idea. Alternatively, if you can weather challenging times and build wealth over the course of a long time, you could choose bonds.
No decision is all-or-nothing. Although gold and silver are the safest options, you have to evaluate all your alternatives and choose the most convenient option for you.
You’ll find the task of choosing your investments in the tagline of Othello, the classic board game: ‘A minute to learn… a lifetime to master.’ Understanding what each option consists of doesn’t take long – now that you know the list of the most popular alternatives, you know what each of them offers.
However, knowing the nuances of each option may take a lifetime. Any investor looking to up their game must do their best to make the most intelligent financial decisions, and for that, you’ll need to make a plan, analyze the market, and change your strategy depending on the results you get.