Finding Safe, High-Potential Investments: Strategies For Success

Investing is a risky business, but some opportunities are safer than others. Low-risk investments are a great option for conservative investors who want to protect their money from potential losses while still benefiting from modest growth. While investing in low-risk assets can preserve your capital, it also limits your returns.

There are a variety of low-risk investments to choose from, each with its own unique characteristics and potential returns. Here are some of the best low-risk investments to consider:

- High-yield savings accounts

- Money market funds

- Short-term certificates of deposit (CDs)

- Cash management accounts

- Dividend-paying stocks

- Money market accounts

- Fixed annuities

- U.S. Treasury bills, notes and bonds

- Series I savings bonds

- Treasury Inflation-Protected Securities (TIPS)

US Treasury Bills, Notes and Bonds

US Treasury Bills, Notes, and Bonds are fixed-income securities issued by the US Department of the Treasury. They are considered to be very low-risk investments due to their status as government-backed debt instruments.

Treasury Bills (T-bills)

Treasury bills are short-term investments with maturities of one year or less, often ranging from four to 52 weeks. They are sold at a discount to their face value and, instead of paying periodic interest, investors receive the full face value at maturity. T-bills are a good option for investors who need to preserve their capital and want a liquid investment.

Treasury Notes (T-notes)

Treasury notes have maturities ranging from two to 10 years. They pay interest semi-annually and return the principal upon maturity. The interest payments make them attractive for income-focused investors.

Treasury Bonds (T-bonds)

Treasury bonds have the longest maturity, typically 20 or 30 years. They offer the highest coupons or interest, paid twice yearly, and usually have the highest yields among the three types of Treasurys. T-bonds are often used for long-term investing and income generation.

All three types of Treasurys can be purchased through the US Treasury platform, TreasuryDirect, or from a bank or broker. They are considered very low-risk because the US government guarantees them and has never defaulted on its debt. However, they also have lower potential returns compared to riskier investments like stocks or corporate bonds.

Treasury securities are influenced by interest rate changes, with longer-term securities like T-bonds typically experiencing larger price swings than T-bills when interest rates fluctuate. The different maturities of T-bills, T-notes, and T-bonds also affect how they react to market conditions and how investors use them.

While Treasurys are considered conservative and stable investments, they play a crucial role in the world's economy and provide a safe way for investors to earn interest and diversify their portfolios.

Series I Savings Bonds

These bonds are considered low-risk investments, as they are backed by the US government and are often used as a safe haven for investors' money during volatile market periods. The US government guarantees the bonds, and they have never defaulted. This makes them extremely safe and a good option for those seeking capital preservation and steady, albeit generally lower, returns.

One of the key features of Series I Savings Bonds is their inflation protection. The principal adjusts with inflation, providing a hedge against inflationary pressures. This makes them particularly attractive during periods of high inflation, as it ensures that the purchasing power of the investment is maintained.

However, it is important to note that these bonds may underperform during periods of low inflation or when real interest rates are rising, as their value is directly tied to inflation trends. Additionally, their returns may not be as high as other fixed-income securities in a stable or deflationary economic environment.

Overall, Series I Savings Bonds can be a good option for investors seeking a low-risk, stable investment with inflation protection. They are particularly well-suited for older individuals looking for a steady, guaranteed income stream during retirement and those who want to balance out higher-risk investments.

Treasury Inflation-Protected Securities (TIPS)

The principal value of TIPS rises as inflation rises, while the interest payment varies with the adjusted principal value of the bond. TIPS pay a fixed rate of interest every six months until they mature. The interest payment amounts can vary since the rate is applied to the adjusted principal or value of the bond. If the principal amount is adjusted higher over time due to rising prices, then the interest rate will be multiplied by the increased principal amount, resulting in higher interest or coupon payments as inflation rises. Conversely, investors will receive lower interest payments if deflation occurs.

TIPS are issued with maturities of five, ten, and thirty years. When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.

TIPS can be purchased directly from the US government through the TreasuryDirect system, in $100 increments with a minimum investment of $100. They can also be bought through a TIPS mutual fund or exchange-traded fund (ETF), or from your bank or broker.

Some of the advantages of TIPS include inflation protection, safety and stability, regular interest payments, capital appreciation potential, tax advantages, diversification, and market liquidity. On the other hand, some of the disadvantages include lower yields compared to other bonds, inflation adjustment taxation, deflation risk, liquidity issues in times of crisis, and opportunity cost.

Fixed Annuities

There are two stages in the life of a fixed annuity: the accumulation phase and the payout phase. During the accumulation phase, you make a series of payments into your annuity and earn interest that grows the value of your account tax-deferred. The payout phase can take the form of a single, lump-sum payment or a series of regular payments over time.

Although inflation can erode the value of a fixed annuity, many companies offer cost-of-living-adjustment (COLA) riders to help the value of your annuity keep up with rising prices.

When considering a fixed annuity, it's important to remember that annuity contracts are notoriously complex. Therefore, it's crucial to read the contract's fine print carefully to ensure you understand the terms and conditions. Additionally, fixed annuities are fairly illiquid, meaning it can be challenging or impossible to withdraw from them without incurring significant penalties.

High-Yield Savings Accounts

• They are ideal for short-term savings goals where you want to earn a higher interest rate than a regular savings account without compromising safety.
• One major perk is Federal Deposit Insurance Corp (FDIC) insurance, which covers potential losses of up to $250,000 per institution.
• You can withdraw funds at any time, providing both security and liquidity.
• There is no minimum balance requirement to open an account, and there are no monthly maintenance fees.
• The interest rates are variable and can change over time.
• Some high-yield savings accounts may require a higher minimum opening balance compared to regular savings accounts.
• Online banks that offer high-yield savings accounts may not provide face-to-face customer service.
• SoFi Checking and Savings: Earn up to 3.80% APY with no minimum balance requirement.
• American Express High Yield Savings Account: Competitive yield, $0 monthly fee, and no minimum balance requirement.
• CIT Bank Platinum Savings: 4.30% APY on balances of $5,000 or more, with a minimum opening deposit of $100.
• Openbank High Yield Savings: Online savings option with no monthly fees and a minimum opening balance of $500.
• Barclays Tiered Savings Account: Competitive yield with no minimum balance requirement.
• Capital One 360 Performance Savings: Earn the same rate on all balances with no minimum deposit requirements or monthly fees.

Frequently asked questions