Top 7 Low Risk Investments

Five rate hikes by the Federal Reserve since March 2022 have not significantly raised interest rates relative to the past. Even now, the typical savings account offers an annual percentage yield (APY) of only approximately 0.17 percent.

Even the finest high-yield bank account offers an annual percentage yield (APY) that is significantly lower than the rate of inflation, making it difficult to keep up with the cost of living. Gaining larger returns without increasing exposure to risk is achievable.

If you want to expand your money without taking any Low Risk, consider the following seven investing options.

7 Low-Risk Investments

The ordinary savings account doesn’t provide nearly the rate of return that these seven investments offer. Though these investments carry little danger, you should be aware that there is still some risk involved.

These products are riskier than bank accounts since they are not protected against loss by the FDIC. But if you can get larger returns from goods that are still very liquid and convenient to use, you might be ready to take on a bit more risk.

Be sure you have a well-stocked emergency fund before putting away any extra money you could need in an emergency before putting any money into the stock market.

1. Treasury, including Treasury Notes, Treasury Bills, and Treasury Bonds

Investments in government bonds, which range in yield from 2.46 percent for a one-month maturity to 3.58 percent for a thirty-year maturity, are the safest way to earn a modestly higher interest rate than a savings account without taking on low risk (as of mid-September 2022).

U.S. Treasury bonds have the full confidence and credit of the United States behind them. The United States has never failed to honor its financial obligations. As a result, if you need access to your money before the debt matures, you can purchase and sell it more easily on secondary markets, making government debt more dependable.

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Bond yields may be lower than those on offer for similarly rated but less secure investments, such as corporate bonds, due to the greater likelihood that investors would be repaid.

2. Corporate Bonds

High-quality corporate debt could be a smart investment choice if you are willing to take on a little extra risk in exchange for greater rewards. These bonds, issued by reputable, successful businesses, often provide higher yields than U.S. Treasury securities or money market accounts.

The St. Louis Federal Reserve reports that the average interest rate on 10-year high-quality bonds is 4.57% as of August 2022.

Despite the security of investment-grade corporate bonds, the following are nevertheless possible outcomes for your money:

Rates of interest increase. Your money won’t benefit from the increased rate because bond interest rates are usually fixed for a set period of time. Overall interest rate increases may force you to sell your bonds for less than you paid for them. The bond’s face value, plus interest accrued, will be paid back at maturity.

The company is no longer solvent. Despite the fact that investment-grade bonds are widely regarded as a safe investment option, they still don’t offer the same level of safety as bank deposits. To maximize your chances of getting paid back, you should prioritize debt issued by highly rated companies. Companies with lower ratings may offer higher interest rates, but they also pose a greater risk of financial loss.

3. Money-Market Mutual Funds

Mutual funds that specialize in the money market typically buy overnight commercial paper and other short-term securities. Although the average annual percentage yield (APY) on a savings account is already around 0%, the best money market funds still give yields of over 2% as of mid-September 2022.

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Money market funds, in contrast to Treasury instruments and corporate bonds, provide investors with “absolute liquidity,” meaning that they can access their money at any moment without penalty.

It is also important to remember that many financial institutions provide access to money market mutual funds. The ability to invest in money market funds through your bank may be available even if you don’t have or don’t want to open a brokerage account.

4. Stable Annuities

To get a steady stream of payments over time in exchange for an initial lump sum investment, investors can purchase a fixed annuity.

Fixed annuities are similar to CDs in how they are used financially: For agreeing to keep your funds inaccessible for a certain time period, you will be compensated with a greater interest rate.

According to Blueprint Income, a fixed annuity marketplace, 10-year fixed annuity rates are roughly 4.75 percent as of the middle of September 2022. However, it’s important to remember that insurers with higher interest rates are typically the ones with the worst reputations and hence the greatest risk of not paying their claims.

It’s important to remember that, similar to certificates of deposit, fixed annuities typically have penalties for withdrawing funds before the contract’s stated maturity date. Nonetheless, you’ll have monthly access to a set amount of your funds without incurring any fees or penalties.

5. Preferred Stocks

Preferred stock is similar to a bond in that it provides a steady income stream and the possibility of capital gains, like common stock. In fact, because preferred stock dividends are not totally guaranteed like bond dividends are, they are often greater.

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Preferred stock investors have received dividends that have increased their average annual return since 1900 to over 7%.

Profits from buybacks, in addition to dividends, can help your investment expand. Preferred stocks offer bigger dividends than corporate debt does, therefore many corporations have been purchasing them back as of late, usually at a slightly higher price than they were sold for.

6. Dividend-paying Common Stocks

In this low-interest rate environment, some common equities, in addition to preferred stock, can be good bets for investors seeking a greater yield. Real estate investment trusts (REITs) and utility stocks are at the forefront of this category because of their reputation for lower risk, steadier dividend payouts, and lower volatility.

According to research conducted by NYU’s Stern School of Business, the average dividend yield for real estate investment trusts (REITs) as of September 2022 was 2.59 percent, while the average dividend yield for utilities was 2.93 percent.

Stick with strong, dependable names that have been around for decades and pay steady, predictable dividends when selecting common stocks, rather than growth firms that are dependent on investor enthusiasm.

However, keep in mind that dividend payments on common stock aren’t guaranteed, and that, as with any asset, you run the risk of losing money if you invest in common stock.

7 – Index Funds

Common and preferred stocks, as well as bonds, purchased separately lack diversification. Stocks and bonds from only one or two companies are extremely risky investments. Just what would happen if such businesses failed?

Index funds provide exposure to a large number of equities and bonds with a single investment. You’ll be able to earn higher interest or dividends with far less of an increase in risk. Vanguard’s BND and VDADX (Dividend Appreciation) funds, as well as PIMCO’s BOND fund, are examples of diversified, high yield mutual funds.