The Federal Reserve has increased interest rates five times since March 2022, but historically, rates are still relatively low.
For instance, the typical savings account still only offers an APY of about 0.17%.
Even if some high-yield bank accounts have greater APYs, keeping your funds’ buying value might be challenging, given that the best one scarcely even matches the yearly inflation rate.
Thank goodness, it’s possible to increase yields by increasing risk. Seven low-risk options that help you build your money are listed below.
Best Investments with Low Risk
Compared to the typical savings account, these seven options may help you increase your returns more rapidly. However, keep in mind that while being low-risk investments, they still carry some risks.
You still run the danger of losing money since, unlike bank accounts, these products are not covered by the FDIC.
You could be ready to accept a little bit more risk in exchange for products that provide excellent liquidity and convenient access at greater rates of return.
Before investing more funds, you need to ensure a fully stocked emergency fund to preserve excellent financial health.
1. Treasury Bonds, Bills of Exchange, and Notes
Your first and best alternative is to invest in government bonds, which provide yields ranging from 2.46% for one month to 3.58% for 30 years.
Government bonds offer a little higher interest rate than a savings account without carrying much more risk (as of mid-September 2022).
- The full confidence and credit of the United States is pledged as security for its debt commitments. The United States has a history of repaying its commitments.
- If you want access to your money before the debt matures, this makes government debt dependable and more straightforward to purchase and sell on secondary marketplaces.
- However, because of their stability, bonds may have lower yields than you would expect from bonds, such as corporate bonds, whose obligation is more likely to be repaid.
Read: How should founders approach venture capital investment?
2. Corporate Bonds
High-grade corporate debt can be a suitable choice if you’re ready to take on a little bit more risk in exchange for greater returns.
Typically, these bonds give returns more significant than those of Treasury securities or money market accounts since reputable, high-performing businesses issue them.
- According to the St. Louis Federal Reserve, 10-year high-quality bonds have an average interest rate of 4.57% as of August 2022.
- Even while investing in high-grade corporate bonds is generally secure, you still run the risk of losing money if
Rates of Interest Rise:
Your money won’t benefit from the increased rate since the interest rates that bonds pay are often fixed for a certain period.
- If interest rates have increased generally, you could also have to sell your bonds for less money than you purchased for them if you need to.
- You will get your bonds’ face value plus interest if you retain them until they mature.
Issuer Becomes Bankrupt:
Investment-grade bonds are typically considered safe investments, but cash in bank accounts is more secure.
- Because of this, it’s crucial to concentrate on debt issued by reputable businesses that are most likely to repay you.
- Organizations with lower ratings may offer higher interest rates, but you are also more likely to lose money with them.
Read: How to Manage Your Personal Finances?
3. Mutual Money Market Funds
Money market mutual funds invest in short-term assets such as overnight commercial paper.
Even the most significant money market funds often have modest rates; in mid-September 2022, the best was over 2%, outperforming the average annual percentage yield (APY) on savings accounts.
- In contrast to Treasury goods and corporate bonds, money market funds provide investors with absolute liquidity:
- You may withdraw your money at any moment, and they are essentially volatility-free. Notable is the fact that several banks also provide money market mutual funds.
- You can invest in money market funds via your bank even if you don’t have or don’t want to open a brokerage account.
4. Fixed Annuities
Fixed annuities are a particular kind of annuity contract that let investors pay a one-time lump amount in return for regular payments in the future.
Fixed annuities operate similarly to certificates of deposit (CDs) in terms of functionality:
- You accept a longer-than-usual interest rate in return for agreeing to restrict access to your funds for a specific time.
- According to Blueprint Income, a fixed annuity marketplace, 10-year fixed annuity rates are around 4.75% as of mid-September 2022.
- However, remember that less reputable insurers sometimes charge higher interest rates, which means customers are more likely to miss payments.
Also, remember that, similar to CDs, you can be subject to fees if you access all of your funds before the fixed annuity’s maturity date.
However, you will often have monthly access to a portion of your funds without incurring any fees.
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5. Preferential Stocks
A mix of stocks and bonds, preferred stock gives some of the opportunity for gain that comes with ordinary stores and the reliable income payments that come with bonds.
- Since price is not entirely assured, preferred stock usually pays larger dividend payments than a company’s bonds.
- Preferred stocks have provided investors with more than 7% annual returns on average since 1900, most of which come through dividends.
- In addition to dividends, a repurchase might result in the growth of your investment.
Because preferred stocks pay enormous dividends than corporate debt and cost corporations more money, many companies have recently begun buying back preferred shares, often at a little premium to the price they were initially offered.
6. Dividend-paying Common Stocks
For investors seeking a more significant income in the current context of low interest rates, several common equities are also entirely secure alternatives to preferred stock.
The most notable are utility stocks and real estate investment trusts (REITs), which have generally been seen as safer, less volatile, and more dependable in their dividend payments.
- According to statistics examined by NYU’s Stern School of Business, utility dividend yields are 2.93%, and REIT dividend yields are around 2.59% on average as of September 2022.
- No matter what sector you choose to invest in, it is ideal to select familiar companies with an excellent track record and stable dividend history, not growth stocks that depend entirely on investor excitement.
However, remember that, like other equities, everyday stock dividend payments aren’t guaranteed, and investing in them might result in a loss of capital.
Read: Difference between Venture Capital and Private Equity: In Simple Words
7. Index Funds
Unlike standard and preferred stocks or bonds, individual equities do not have a diversified portfolio.
Bonds and stock may only be purchased from one or two firms, which makes them intrinsically highly hazardous.
- What happens if such businesses fail? Using index funds, you may invest in hundreds or thousands of different stocks and bonds.
- It offers high interest or dividend rates while significantly lowering the risk you incur while investing.
- Diversified, higher-rate funds include the BOND fund from PIMCO, the BND or VDADX (Dividend Appreciation) funds from Vanguard, among others.
Always have cash in a liquid savings account that you can access immediately.
However, you have choices if you need your money to remain somewhat fluid yet want a better return.
Even when interest rates are low, money market funds, annuities, government, and high-grade corporate debt stay some of the greatest low-risk, higher-yield investment options.