Smart Strategies For Secure Investments: A Three-Pronged Approach

Making secure investments is a great way to grow your wealth over time. While there is no such thing as a completely risk-free investment, there are several options that can help you protect your capital and generate stable returns. Here are three secure investment options to consider:

1. High-Yield Savings Accounts: These accounts offer above-average interest rates and are typically FDIC-insured, ensuring the safety of your deposits. They provide easy access to funds and are suitable for those seeking low-risk investments.

2. Certificates of Deposit (CDs): CDs are offered by banks and provide a fixed rate of interest for a specific term. They are a safe investment option as they are FDIC-insured and protect your principal. However, early withdrawal may result in penalties.

3. Money Market Funds: These funds invest in short-term, high-quality debt instruments and are known for their safety and liquidity. They offer slightly higher interest rates than savings accounts and are suitable for investors seeking stable returns with easy access to their funds.

Remember, while these investment options are generally considered secure, it's important to conduct your own research and consult with a financial advisor to determine the best strategies for your specific needs and risk tolerance.

High-yield savings accounts

• Newtek Bank: 4.70% APY, $0 minimum deposit to open
• LendingClub: 4.50% APY, $0 minimum deposit to open
• My Banking Direct: 4.55% APY, $500 minimum deposit to open
• Bask Bank: 4.50% APY, $0 minimum deposit to open
• Bread Savings: 4.50% APY, $100 minimum deposit to open
• BMO Alto: 4.30% APY, $0 minimum deposit to open
• TAB Bank: 4.26% APY, $0 minimum deposit to open
• Laurel Road: 4.15% APY, $0 minimum deposit to open
• UFB Direct: 4.01% APY, $0 minimum deposit to open
• Synchrony Bank: 4.10% APY, $0 minimum deposit to open
• Quontic Bank: 3.85% APY, $100 minimum deposit to open
• Citizens: 3.70% APY, $0 minimum deposit to open
• Zynlo Bank: 4.50% APY, $10 minimum deposit to open
• Varo Bank: 2.5% to 5% APY, $0 minimum deposit to open

While not all of these accounts require a minimum deposit to open, some do require a minimum balance to earn the APY. For example, BrioDirect's High-Yield Savings account offers a competitive yield but requires a $5,000 minimum balance to open.

Money market funds

Advantages of Money Market Funds

Disadvantages of Money Market Funds

Short-term certificates of deposit

When you open a CD, you agree to keep your money in the account for a specified period of time, known as the term. In exchange, the bank offers you a fixed interest rate that is typically higher than what you would earn in a traditional savings account. The interest rate you receive depends on the term you choose and the bank's current rates.

One thing to keep in mind with CDs is that they have early withdrawal penalties. If you need to access your money before the term is up, you will likely have to pay a fee, which could include forfeiting some of the interest you earned or even a portion of your principal. To avoid this, look for a no-penalty CD, which allows you to withdraw your money early without incurring a penalty.

When choosing a CD, it's important to shop around for the best rates. Online banks often offer higher rates than traditional brick-and-mortar banks. You can use websites like Bankrate.com and Nerdwallet.com to compare rates from different banks. It's also worth noting that longer-term CDs tend to offer higher rates, but you can also consider creating a CD ladder by investing in multiple CDs with different terms to take advantage of higher rates while maintaining access to your money.

Overall, short-term CDs are a great option if you're looking for a safe and secure investment with relatively low risk. They offer a fixed rate of return and are FDIC-insured, making them a reliable choice for those seeking to grow their savings over time.

Dividend-paying stocks

Dividend stocks are considered safer than high-growth stocks because they pay out cash dividends, helping to limit their volatility. Dividend-paying companies tend to be more stable and mature, and they offer the possibility of stock price appreciation.

• You can invest in dividend stocks by setting up a brokerage account, which can be easily done through an online broker. Once your account is set up and funded, you can choose which dividend stocks to invest in.
• If you're not sure which high-dividend stocks to choose, consider investing in a dividend fund. Mutual funds and exchange-traded funds (ETFs) focused on dividends hold a basket of stocks that pay dividends.
• When choosing which dividend stocks to invest in, look for companies with a history of steady dividend growth, a low payout ratio, and a respectable current dividend rate.
• Be cautious of stocks with high dividend yields. There is usually a reason—not always a good one—that a security is offering payouts that are well above its peers or the broader stock market. A high dividend yield could be due to a shrinking share price, which could indicate an impending dividend cut.
• Assess the dividend payout ratio. If this metric is higher than 100%, the company is paying out more to shareholders than it is earning. In this case, the company may be funding payouts with borrowed funds or dwindling cash reserves.
• Check the company's balance sheet. High levels of debt represent a competing use of cash.
• Look at the company's dividend growth and coverage ratio. Generally, you want to find companies that not only pay steady dividends but also increase them at regular intervals.
• Altria Group (MO): The U.S. manufacturer of Philip Morris and other tobacco brands is known for its consistent dividend growth. At current prices, it yields a substantial 6.2%.
• AT&T (T): This telecommunications company yields an attractive 6.3%.
• Realty Income (O) and National Retail Properties (NNN): These two REITs are considered to have some of the safest dividends in the stock market. At current prices, Realty Income and National Retail yield 3.7% and 3.6%, respectively.
• Walgreens Boots Alliance (WBA): As of December 2024, Walgreens Boots Alliance had the highest dividend yield of the S&P 500 stocks, at about 10.2%.

Investment-grade corporate bonds

There are three main credit rating agencies that evaluate the creditworthiness of bonds: Moody's, Standard & Poor's, and Fitch. Bonds rated Baa by Moody's or BBB by S&P and Fitch or above are considered investment-grade. These ratings indicate that the companies issuing the bonds are more financially stable and have a lower probability of defaulting on their debt obligations.

When investing in corporate bonds, it is important to consider factors such as maturity, credit rating, and interest rates, which can affect the bond's yield and price. Corporate bonds can provide benefits such as diversification, income through regular interest payments, higher yields compared to government bonds, and liquidity.

However, it is essential to remember that all investments carry some risk. Corporate bonds are exposed to interest rate risk, spread risk, and default risk. Default risk refers to the possibility that the company issuing the bond may fail to repay its debt obligations. Therefore, investors should carefully consider the underlying credit quality of the issuer when investing in corporate bonds.

Frequently asked questions