A low-risk investment means the chances of an investor losing money are very low, but the potential profits will not be very high either. People have different investment strategies and ways of thinking when it comes to low-risk investments. You may choose one for short-term guaranteed earnings if you have extra cash or you could simply want to diversify your portfolio with a solid mix of high-risk and low-risk investments. Regardless of your reason, here are some of the top investments that carry the lowest risk.
Savings Account Or Certificate Of Deposit
One of the first investments most people make at an early age is putting money into a savings account at a bank. The great thing about a traditional savings account is your money is guaranteed and it’s readily available whenever you need it. You can continuously add to your balance if you want to put away money for a big purchase or just want to build your emergency fund. Savings accounts typically yield anywhere from less than 1% APY to as high as 3% APY, so you can’t expect to become rich with them.
An investor may also choose a certificate of deposit (CD) to earn a higher interest rate. This higher interest rate is earned by committing to keeping your money in the CD for a specific, predetermined amount of time. The longer you keep your money in the CD, the higher the interest rate typically is. The downside is if you need to withdraw money before the predetermined time period ends, you are subject to fees or penalties. The interest rate you can receive is highly variable and depends on the institution you work with.
Money Market Funds
A good way to add some diversification to your portfolio is to invest in money market funds. This type of investment is similar to a certificate of deposit, but you have the benefit of liquidity since you can convert the investment into cash without penalties. You may have to pay some fees to invest in a money market fund, so be sure to take notice of those depending on the financial institution you work with. The annual APY is usually between 1%-2%, but can be highly variable depending on specific factors.
When a new investor thinks of stocks, they typically think about them being a high-risk investment. Dividend stocks are considered to be some of the safest investment options since dividends are paid regularly and the fluctuations in prices aren’t as volatile. Investing in dividend stocks carries more risk than savings accounts, CDs or money market funds, but they are a much lower risk than traditional stock investing. In exchange for the slightly higher risk, you can enjoy returns of around 2% or higher.
Stock Investing Info is here to help you sort through your investment strategies to ensure you have a well-balanced portfolio. If you’re looking to add some low-risk diversification to your portfolio, contact us today to see what may be the best option for you.