Best Low-Risk Investments: Maximizing Returns

Low-risk investing involves buying assets that have a low probability of incurring losses. While you’re less likely to see losses with a low-risk investment, you’re also less likely to earn a significant return. Examples of low-risk investments include treasury securities, corporate bonds, money market mutual funds, fixed annuities, preferred stocks, common stocks that pay dividends and index funds.

Money market mutual funds

One of the benefits of investing in money market mutual funds is that they are very liquid, which means that you can easily buy or sell them without incurring high transaction costs. They are also relatively low risk compared to other types of investments, as the funds invest in high-quality securities with very low default risk.

However, it is important to note that money market mutual funds are not completely risk-free. While they are considered low-risk investments, there is still a small chance that you could lose money. Additionally, the returns on money market mutual funds may not be as high as some other, riskier investments.

Overall, money market mutual funds can be a good option for those looking for a relatively low-risk investment that pays a modest amount of interest. They are a safe way to grow your money more quickly than you would with a traditional savings account, especially in a low-interest-rate environment.

Treasury securities

However, it's important to remember that low-risk investing generally means sacrificing high returns. While you're less likely to see losses with a low-risk investment like Treasury securities, you're also less likely to earn a significant return.

If you're considering investing in Treasury securities, it's important to do your research and understand the risks and potential returns. It's also a good idea to consult with a financial advisor to get personalised advice based on your financial goals and risk tolerance.

Corporate bonds

When you buy a corporate bond, you are essentially lending money to the company that issued it. In return, the company promises to pay you a fixed rate of interest over the life of the bond and to repay the principal amount (the face value of the bond) when the bond matures. This makes corporate bonds a relatively low-risk investment, as you can be reasonably certain of the income you will receive and the return of your initial investment.

The interest rate, or coupon rate, on a corporate bond is set when the bond is issued and remains the same throughout its life. This means that corporate bonds can provide a stable and predictable source of income, which can be attractive to investors seeking regular cash flow. The interest payments are typically made every six months, providing a steady stream of income for bondholders.

However, it's important to note that corporate bonds are not completely risk-free. While they are generally considered safer than stocks, there is still a chance that the issuing company could default on its debt obligations. This means that they may be unable to make the interest payments or repay the principal amount when the bond matures. As such, it's important to carefully consider the financial health and creditworthiness of the company before investing in their corporate bonds.

Overall, corporate bonds can be a good option for investors seeking a relatively low-risk way to grow their money and generate a steady income stream. By investing in corporate bonds, you can benefit from regular interest payments and the eventual repayment of the principal amount, while also diversifying your investment portfolio and reducing overall risk.

Fixed annuities

There are different types of fixed annuities, including term certain annuities, which pay money over a set term, after which they end and no more payments are made. Term certain annuities are often sold to people who want stable income for their retirement but are not interested in buying an insurance component or cannot afford one. Straight life annuities pay until the annuitant's death; they cannot be left to a beneficiary, and the company selling it keeps whatever money may be left over.

Online savings accounts

While low-risk investments generally mean sacrificing high returns, there are still safer options that pay more interest than they have in the past. Online savings accounts are one such option. These accounts are insured, which makes their risk practically non-existent. They are traditionally considered very safe investments.

Some online savings accounts pay higher rates of interest than some certificates of deposit (CDs). However, these so-called high-yield accounts may require a large deposit and the rate is variable. If you remove funds from a CD early, you'll typically lose some of the interest you earned. Some banks also take a portion of the principal as well, so it's important to read the rules and check CD rates before you invest.

Additionally, if you lock yourself into a longer-term CD and overall rates rise, you'll be earning less than you otherwise could be. To get a market rate, you'll need to cancel the CD and will typically have to pay a penalty to do so.

Frequently asked questions