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In times of market or geopolitical volatility, safe, historically low-risk investments tend to gain attention. Careful investors can fight inflation and protect their savings by utilizing safer investments such as Federal Deposit Insurance Corporation (FDIC)-insured accounts. Advertisement.
In today’s world of volatile markets and economic uncertainty, many investors are seeking safe havens for their money. While there’s no such thing as a completely risk-free investment, there are several options that offer a high degree of security and stability, while still providing the potential for decent returns.
This guide will explore the best low-risk investments available in 2024, helping you navigate the financial landscape and make informed decisions about where to put your hard-earned money.
Understanding Risk and Return
Before diving into specific investment options, it’s crucial to understand the fundamental relationship between risk and return. Generally, higher potential returns come with higher levels of risk Conversely, lower-risk investments typically offer lower returns
This principle applies to all types of investments, from stocks and bonds to real estate and commodities. The key is to find the right balance between risk and return that aligns with your individual financial goals, risk tolerance, and investment horizon.
Benefits of Low-Risk Investments
While high-risk investments may offer the allure of substantial gains, low-risk investments provide several key benefits:
- Capital Preservation: Low-risk investments prioritize safeguarding your principal, minimizing the chance of losing your initial investment. This is particularly important during periods of market volatility or economic uncertainty.
- Steady Income: Many low-risk investments offer regular income streams through interest payments or dividends. This can provide a valuable source of passive income, especially for retirees or individuals seeking additional financial security.
- Reduced Volatility: Low-risk investments tend to be less susceptible to market fluctuations, offering greater stability and peace of mind for investors who prioritize safety over potential for high returns.
Top Low-Risk Investments for 2024
Now, let’s delve into the specific low-risk investment options that are particularly attractive in 2024:
1. High-Yield Savings Accounts:
These accounts offer higher interest rates than traditional savings accounts, providing a better return while still maintaining a high degree of security. Your money is typically FDIC-insured, ensuring its safety even in the event of bank failure.
2. Money Market Funds:
Similar to high-yield savings accounts money market funds invest in short-term, low-risk securities and offer a slightly higher return than traditional savings accounts. They are also highly liquid allowing for easy access to your funds when needed.
3. Short-Term Certificates of Deposit (CDs):
CDs offer a fixed interest rate for a set period, typically ranging from a few months to several years. While your money is locked in for the duration of the CD, you are guaranteed a specific return, making them a good option for short-term savings goals.
4. Series I Savings Bonds:
These bonds are issued by the U.S. Treasury and offer a unique feature: their interest rate adjusts based on inflation, ensuring that your investment keeps pace with rising prices. They are a safe and reliable way to protect your purchasing power over time.
5. Treasury Bills, Notes, and Bonds:
U.S. Treasury securities are considered among the safest investments available, as they are backed by the full faith and credit of the U.S. government. They offer varying maturities and interest rates, allowing you to choose the option that best suits your investment horizon and risk tolerance.
6. Corporate Bonds:
Corporate bonds are issued by companies and typically offer higher returns than government bonds, reflecting the added risk involved. However, carefully selecting bonds from financially sound companies can provide a good balance between risk and return.
7. Dividend-Paying Stocks:
While not completely risk-free, certain stocks with a history of consistent dividend payments can offer a reliable source of income while providing some potential for capital appreciation. Look for companies with strong financials and a track record of dividend increases.
8. Preferred Stocks:
Preferred stocks offer a hybrid between stocks and bonds, typically paying a fixed dividend and having priority over common stockholders in the event of liquidation. They can provide a steady income stream while offering some protection against market downturns.
Choosing the Right Low-Risk Investments
The best low-risk investment for you will depend on your individual circumstances, financial goals, and risk tolerance. Consider the following factors when making your decision:
- Investment Horizon: How long do you plan to invest your money? This will influence the types of investments that are appropriate for you.
- Risk Tolerance: How comfortable are you with potential losses? Your risk tolerance will guide you towards investments that align with your comfort level.
- Financial Goals: What are you hoping to achieve with your investment? Are you saving for retirement, a down payment on a house, or simply looking for a safe place to park your money?
- Liquidity Needs: How easily do you need to access your funds? This will determine whether you should choose more liquid or less liquid investments.
Frequently Asked Questions (FAQs)
Q: How can I balance my portfolio with low-risk investments?
A: To balance your portfolio, consider allocating a portion of your assets to low-risk investments like bonds or dividend-paying stocks. However, don’t neglect higher-risk growth investments like equities. A balanced portfolio can help mitigate risk while still providing the potential for long-term growth.
Q: What factors should I consider when choosing a low-risk investment?
A: Consider the holding period, your risk tolerance, and potential opportunity costs. Choose investments that align with your time horizon and comfort level with risk. Remember, low-risk investments typically offer lower returns than higher-risk options.
Q: How much return can I expect from a low-risk investment?
A: Returns from low-risk investments tend to be modest, but they can still provide a better return than traditional savings accounts. Expect returns to be in line with the current prevailing interest rates.
Q: How do low-risk investments compare to other types of investments?
A: Low-risk investments generally offer lower returns than higher-risk investments, but they provide a more reliable way to generate income and preserve capital. They can also help mitigate the volatility of stocks and protect your funds during market downturns.
In a world of uncertainty, low-risk investments offer a valuable haven for your money. By carefully considering your financial goals, risk tolerance, and investment horizon, you can choose the options that best suit your needs and help you achieve your financial objectives.
Remember, there’s no one-size-fits-all approach to investing. The best low-risk investments for you will depend on your individual circumstances and financial goals. By conducting thorough research, seeking professional guidance if needed, and making informed decisions, you can navigate the investment landscape with confidence and achieve long-term financial success.
Safe, FDIC-insured and government-backed options
The investments listed below are all insured, so there are essentially no risks associated with them. Traditionally, they are considered very safe investments. However, their yields are also less than what you might obtain from long-term stock market investments.
Cash management accounts
What are they? Today’s providers differ slightly in the nature of these accounts, but the majority of these products function much like an online savings account. These have grown in popularity recently among robo-advisors and online brokerages, primarily because they facilitate the seamless transfer of funds to and from investment accounts for their clients.
Current returns: Up to 5. 5%. See NerdWallet’s best cash management accounts for current APYs.
What makes them safe? Although non-bank financial institutions offer cash management accounts, the FDIC still backs them thanks to partnerships with banks.
Where can I get one? At a robo-advisor or online brokerage