Safe Investments For 35-Year-Olds: Strategies For Long-Term Growth

Safe investments are a great way to protect your capital and are especially useful for those who are 35 and looking to safeguard their wealth for retirement. While no investment is completely risk-free, safe investments tend to be stable, liquid assets with modest returns and low volatility. These investments are a good option for those who want to avoid significant risks, such as seniors or those nearing retirement, and can be used to prolong retirement funds or pass down money to family members. Safe investments include treasury securities, treasury inflation-protected securities (TIPS), certificates of deposit (CDs), money market accounts, and fixed annuities.

High-yield savings accounts

The higher interest rate means that you can earn a substantial amount of money over time. For instance, with a 4% APY, a savings balance of $10,000 would earn you over $400 in interest after a year. This is a significantly better return than what you would get with a traditional savings account, which may offer rates as low as 0.01% APY.

When choosing a high-yield savings account, it is important to consider the APY offered and whether the account has a minimum balance requirement. While some accounts may offer higher interest rates, they might also require a minimum balance to earn the top APY. Additionally, some high-yield savings accounts may limit certain types of withdrawals to a maximum of six per month.

Overall, high-yield savings accounts are a safe and attractive investment option for 35-year-olds, offering competitive interest rates, stability, and easy access to your funds.

Money market accounts

MMAs are considered a safe investment option because they are low-risk. Banks use the money from these accounts to invest in stable, short-term securities that are low-risk and highly liquid, including certificates of deposit (CDs), government securities, and commercial paper. Once these investments mature, the bank splits the return with you, which is why you get a higher rate.

MMAs are also a great place to hold your money temporarily, especially when the market is raging with volatility and you can't be sure of any other safe haven. They are also a good option for people who want to save for a major expense, like a vacation, or for medium to long-term goals. They act like a checking-savings account hybrid, offering both the flexibility of a checking account and the interest-bearing features of a savings account. They come with checking account features, meaning you can write checks, make transfers between accounts, and conduct debit card transactions—up to a certain limit. Federal guidelines limit them to six per month, after which you're charged a service fee.

While MMAs are generally safe, they are prone to inflationary risk and should not be used as a primary investment. They are also not designed to outpace inflation. Instead, they are meant to grow savings at a faster rate than traditional checking or savings accounts.

Certificates of deposit

While no investment is completely safe from risk, certificates of deposit (CDs) are considered a safe investment option. They are a type of savings account that holds a fixed amount of money for a fixed period, ranging from three months to ten years. In exchange, the issuing bank pays interest. When you cash in or redeem your CD, you receive the money you originally invested plus any interest. CDs are considered to be one of the safest savings options due to their fixed and guaranteed rates and federal insurance coverage. The Federal Deposit Insurance Corporation (FDIC) insures bank accounts, while the National Credit Union Administration (NCUA) insures credit union accounts, protecting up to $250,000 of your funds in the rare event of institutional failure.

CDs are safer and more conservative investments than stocks and bonds, but they offer lower growth opportunities. They are ideal for short-term financial goals when the maturity date aligns with your time horizon, i.e. when you believe you will need access to your cash. While CDs have lower returns than riskier assets, they are a smart source of diversification for your portfolio. When markets become volatile, the stability of safe investments like CDs can be advantageous.

It is important to note that CDs have limited liquidity, and withdrawing the principal before the maturity date often incurs early withdrawal penalties or a loss of interest payments. Additionally, tying your money up for longer terms may protect your funds, but you could miss out on higher interest returns if the federal funds rate increases. Therefore, it is crucial to understand the limitations and benefits of CDs and consider consulting a financial professional before investing.

When considering a CD, it is recommended to research the background of the issuer or deposit broker to ensure they are from a reputable institution. While deposit brokers facilitate CD purchases, they are not licensed or certified, and no state or federal agency approves them. Always check for any history of complaints or fraud. Many deposit brokers are affiliated with investment professionals, and you can check their disciplinary history using online databases from the SEC and FINRA. Your state securities regulator may also have additional information.

In summary, CDs are a safe investment option, offering fixed interest rates and federal insurance coverage. They are ideal for short-term financial goals and provide stability to your portfolio. However, they have limited liquidity, and it is essential to understand the potential limitations and risks before investing.

Corporate bonds

When it comes to investing, there is no one-size-fits-all approach, and what may be suitable for someone else may not be suitable for you. A trusted financial advisor can help develop an investor's risk profile. Many online brokers also offer risk profile "calculators" and questionnaires that determine if an individual's investing style is conservative or aggressive.

There are different types of corporate bonds with different coupon structures. Bonds with a zero coupon rate do not make interest payments and are issued at a discount to their par value, with the full face value repaid at maturity. Bonds with a fixed coupon rate pay the same interest rate until maturity, usually annually or semi-annually. Bonds with floating coupon rates are based on a benchmark such as the Consumer Price Index (CPI) or the London Interbank Offered Rate (LIBOR), with interest payments rising or falling along with the benchmark. Bonds with step coupon rates provide interest payments that change at predetermined times, usually increasing.

It is important to note that corporate bonds are not insured, and there is a risk of losing principal if the company defaults on the bond. They also have a low chance of capital appreciation compared to stocks.

Investment-grade bonds, whether corporate or government, are considered relatively safe investments. Bonds are rated by agencies such as Standard & Poor's Global Ratings, Moody's, and Fitch Ratings. Generally, any bond rated under B+ is not considered investment grade.

Corporate bond funds, which invest in debt papers, can be a good option for investors looking for a fixed but higher income from a safe option. These funds may also take small exposures to government securities when no suitable opportunities are available in the credit space.

US Treasury securities

There are several types of US Treasury securities, including Treasury bills, notes, and bonds. Treasury bills are offered weekly with maturities ranging from a few days to 52 weeks. Treasury notes are typically offered in two-, three-, five-, seven-, and ten-year terms, with the ten-year note being offered quarterly. Treasury bonds, which are the most well-known type of Treasury security, are issued with maturities of ten years or more.

Treasury securities can be purchased online at auction in $100 increments, although not every maturity term for each type of security is available at every auction. Employees who wish to purchase Treasury securities may do so through the TreasuryDirect Payroll Savings Plan, which allows investors to automatically defer a portion of their paychecks into a TreasuryDirect account to purchase securities electronically.

Treasury securities are a popular choice for investors seeking to minimize risk in their investment portfolios. They are also used by investment funds to meet certain objectives while satisfying fiduciary requirements. Individual investors often purchase Treasury securities because they can count on receiving their principal and interest according to the specified schedule without the risk of premature calls. Fixed-income investors in states with high-income tax rates can benefit from the tax exemption of Treasuries at the state and local levels.

Treasury Inflation-Protected Securities (TIPS) are a type of Treasury security that protects investors from the effects of inflation. The principal amount of TIPS rises or falls depending on the consumer price index, ensuring that the investor's purchasing power remains the same even if inflation increases. TIPS are issued in terms of 5, 10, and 30 years, and they pay interest every six months based on the adjusted principal. At maturity, investors receive the higher principal amount if it has increased, or the original principal amount if it has decreased.

Frequently asked questions