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Investing

What are the best low-risk investments?

For beginner investors, here are 7 types of low-risk investments that can be a good place to start.

For beginners, low-risk investing can be a good place to start, but they can also help balance diverse and complex portfolios.

Date:
December 8, 2021
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A common approach to investing requires a range of strategies, where low-risk investments balance out high-risk alternatives. Whenever you invest, consider your full portfolio and see what risk level makes the best sense. 

Knowing your alternatives is a good place to start. For beginner investors, here are 7 common types of low-risk investments:

  • High-yield savings accounts are FDIC-insured up to $250,000, which means they're low-risk and safe, and they typically offer fixed interest rates. It’s ideal if you need access to your money any time. You can typically withdraw funds with no penalty or extra fees.
  • Certificates of deposit are also FDIC-insured up to $250,000 and often offer higher rates than savings accounts. CDs are less liquid though, often charging a penalty for withdrawals before a set timeframe, which can vary from a few months to years. 
  • Money market accounts are similar to a savings account, with a lot of similar features, including debit card access and interest payments. They’re FDIC-insured but often require a higher minimum deposit, and there are typically limits on monthly withdrawals. But the rate of return may be better. 
  • Money market funds are short-term mutual funds. They’re not FDIC-insured, but they typically offer a mix of low-risk investments that also allow for some liquidity. In other words, you can make withdrawals with relative ease and sometimes with lower penalties than other investments, while also expecting slightly better returns than traditional savings accounts. Money market funds often include a mix of cash, CDs and US Treasury bills.
  • Treasury securities are backed by the US government, with protection similar to FDIC-insured accounts. Treasury bills, notes and bonds typically offer higher returns than other low-risk investments and can mature from under a year to as long as thirty years.
  • Fixed annuities are arranged by insurance companies and they guarantee a fixed income either over an established period of time or until the death of the client. You can either contribute a lump sum or pay into it over time. With a guaranteed return, you can expect financial security and sometimes other benefits, such as minimum guaranteed payments or death benefits. 
  • Preferred stocks have some of the same risk and volatility as other stocks, but they can earn dividends or other pay-outs before other stocks. That’s what qualifies them as low-risk investments. They’re not FDIC-insured and offer no security for the money you invest.  

                                                            How to diversify your investment portfolio.

Where can I invest with no risk?

The most common investment with the least amount of risk is a high-yield savings account. CD's, money market market accounts and Treasury bonds can also be grouped as low-risk investments. 

ETFs and mutual funds

Mutual funds come in many shapes and sizes, including some that are actively managed to be low-risk. ETFs can be manipulated to lower your risk, when poor performing stocks can be traded quickly. 

Neither of these are FDIC-insured. Review them closely before investing. 

What's the best way to lower your risk?

Whenever you invest, consider your risk tolerance and if the investment at hand is in balance with the rest of your portfolio. Here are three ways to keep your investment risks in check.

1. Keep a diversified portfolio

Multiple investments with different risk profiles can ensure you’re protected against sudden major losses. Also, spreading your investments across various asset classes (like stocks, bonds, savings and even real estate) protects against financial downfall in one market or segment. 

2. Set clear goals

Setting goals can help guide your investments, especially in determining your risk tolerance. Clear financial goals can help you make informed decisions. 

3. Monitor your investments

You no doubt carefully research your investment decisions. But it’s also important to monitor your investments, to make sure they stay on track, especially outside of the low-risk range.

How Bright can help

Bright can build a financial plan tailored to you. It’s a good place to start before investing. Bright can help grow your savings, so you’re covered for emergencies, and your Bright Plan offers a step-by-step guide to reaching your goals. 

With the kind of financial stability a Bright Plan provides, you can invest with confidence and begin to build more wealth. 

If you don't have it yet, download the Bright app from the App Store or Google Play. Link your checking account and your credit cards, set a few goals and let Bright get to work!

Recommended Readings:

How much should I invest in stocks

What to Do With Extra Cash: 3 Ways to Use Extra Savings

Technical Content Writer

With a postgraduate degree in commerce from The University of Sydney, Pranay has his finger on the pulse of the finance industry. Breaking down complex financial concepts is his forte.

With a postgraduate degree in commerce from The University of Sydney, Pranay has his finger on the pulse of the finance industry. Breaking down complex financial concepts is his forte.

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