Top 10 Low Risk Investments

More money, more problems—as the saying goes. And while most people would be glad to have more money, the art of making money out of money can sometimes force you to risk more than you’d like. But does it have to? As long as you’re willing to put in the time, these low risk investments will yield big payouts with very few problems along the way.

10 Low Risk Investments

1. Money Market Accounts
2. High-Yield Savings Accounts
3. Certificates of Deposits
4. Treasury Notes
5. Blue Chip Stocks
6. Real Estate
7. Mutual Funds
8. Pension Plans
9. Annuities
10. Precious Metals

What does risk mean, anyway? And why is it important to consider? Risk is a situation where one is exposed to danger, harm, or loss. Placing your money into a risky investment does not immediately imperil your life as much as skateboarding out of a helicopter into a lagoon swirling with sharks. But the potential loss of your money can result in financial hardship, which in turn directly impacts your ability to purchase the things you want, and in some cases, the things you need—necessities like food, shelter, and heating.

But by the same token, pretty much all forms of growing your money are going to involve risk. And if you’re not willing to take on any risk at all, you will not be able to see your money grow. The only thing that will contribute to the growth of your funds, whether you’re setting them aside for retirement, a major life event, or to make a large purchase, will be regular contributions. But the difference between that and letting money grow with the assistance of compound interest is a world apart.

Take, for example, a waitress who saves their tips and deposits—on average, an extra $500 every month goes into a piggy bank. They do this because they heard that Wall Street is a risky place, and they figure it’s safer to keep their pennies in hand rather than give them to a man in a three-piece suit. At the end of the year, they will have saved an admirable $6,000. After 10 years, assuming they collect tips at the same rate, they will have accumulated a very respectable $60,000. But can they do better?

Indeed, they can. If they deposited the money into some type of investment growing at a modest eight percent annually, they would end up with around $6,225 after 12 months of regular contributions. That doesn’t sound so great; an extra $200 or so every year ($2,000 after a decade). But actually, that’s not how compound interest works. In fact, at the end of a decade, the waiter would have more than $92,000 saved up—in effect generating an extra decade worth of tips as passive income.

But what about the risk factor? Aren’t their concerns legitimate? Indeed, they are, to a certain extent. But at the same time, their concern needs to be treated with greater nuance. Not every type of investment is as risky as others. And as we will see, there are a number of factors that contribute to how risky an investment is. Some of it depends on the investor, the amount they are investing, the volatility of their intended investment, and whether or not it has a proven ROI.

It’s not good to risk more than you can afford. But it’s also not good to avoid risk entirely because, without risk, you won’t see a gain. Nevertheless, there are ways to minimize your investment risk.

What is a Low Risk Investment?

A low risk investment is an asset class or investment opportunity where the chance of losing your money is very slim. This might be because the price of the investment is historically stable, because it’s tightly regulated by a government or central bank, or because the people managing it are extremely competent.

Low risk investments are in contrast to high risk investments, there may be a significant chance of losing your money; contrary to all the reasons mentioned above. More often than not, the price of the investment is historically volatile. Most high risk investments are not unregulated by any government agency or central bank, or the person who is managing it is inexperienced, or the particular investment is unproven (such as a startup with a novel technology).

As mentioned, most money-making opportunities are going to come with some risk. But for investors with a low risk appetite, there are plenty of investments where they are far less likely to lose their money.

It should be noted however, that reward and risk are often inversely related. The more risky an investment is, the greater its payout. And the less risky an investment is, the lower its payout (though the payouts may be more consistent and dependable).

What Are the Safest Investments?

There are a number of low risk investment opportunities available for consumers who prefer to play it safe, including:

1. Money Market Accounts

When you deposit money into the bank, the bank does not collect those funds and place them into a neat little pile with your name on it. They take that money and loan it to other parties in need of cash, including businesses and a homebuyer looking for loans.

The bank collects the interest, which it uses to grow, run its daily operations, pay dividends to shareholders, and award interest. In other words, traditional checking or savings accounts are a terrible place to grow your money.

In fact, when inflation is bad, you are actually losing money with your cash in a checking account because the purchasing power of every dollar is shrinking. One solution is to put your cash into a money market account. Traditionally, money market accounts don’t offer much sizeable growth, but it is more than just putting your money into a checking or savings account.

For instance, the typical bank interest rate on a checking account is 0.03%, while the rate on a money market account is 0.09%. The cash in the money market account is invested at the bank’s discretion, but it is also liquid in that you are able to withdraw as much as you’d like at any time.

2. High-Yield Savings Accounts

A high yield savings account is another stable way to grow your money because the safety of your deposit is guaranteed by the federal government (specifically the FDIC) for up to $250,000. That said, the risk is extremely negligible (one could even say nonexistent)—but again, recall that risk and return are inversely related.

High yield savings account interest rates vary from bank to bank, but at the time of this article some banks are offering high yield savings accounts with 0.60% APY (or annual percentage yield). Keep in mind that APY is not the same as the interest rate, although it’s similar enough for the sake of broad discussion.

If you invest $1,000 in a high yield savings account with an APY of 0.60%, you’ll walk away with $6 in interest payments from the bank at the end of the year. Not much, but the amounts begin to look more appealing if you have more money. For instance, if you invest $10,000, you’ll walk away with $60. If you invest $100,000, you’ll walk away with $600. If you invest seven figures, you’ll walk away with $6,000.

As you can see, high yield savings accounts are not really great at generating returns unless you have a significant amount of money invested—but they are extremely low risk.

3. Certificates of Deposits

A certificate of deposit (also called a CD) is essentially a loan you provide to the bank. Really, any cash you deposit is a loan to the bank, but a CD is different in that you promise you won’t ask them to return your money for an agreed-upon span of time, whether that’s six months, 12 months, or five years. In return, the bank will pay you a better interest rate than you would get by placing it into a checking account.

In times past, CDs had attractive rates, especially in the 1970s and 1980s when rates reached into the teens. For clarity’s sake, realize that means if you put your money into a 12-month CD with an APY of 15% (not uncommon) you’d walk away with $150 for every thousand you put in.

Unfortunately, today’s rates on CDs are not very attractive, with the best of them hovering below two percent. In terms of risk, CDs are great because your money is insured by the FDIC and you won’t be able to touch it (sometimes when it comes to personal finance, we are our own worst enemies). But in terms of growth, the returns are negligible.

4. Treasury Notes

Treasury notes (or bonds, as they are often called) are loans you make to the government. In return, they issue a certificate that can be redeemed for a specified value.

Treasury bills mature in one year (or sooner), while treasury notes mature over a decade. Treasury bonds have a 30-year growth span. In most cases, you are able to cash the bond out before it reaches its full maturity, but you won’t get the full value you could get if you wait until it’s fully mature.

Bonds and treasury notes are an incredibly secure investment because you are lending money to an entity that is guaranteed to pay it back: the government. There are also government bonds issued by state and local governments, and bonds issued by corporations, but corporate bonds do not carry the same level of security that government bonds inherently possess.

However, recall that risk is inverse to return. While some estimates suggest that the stock market has grown by 10% since 1926, government bonds in the same time period have yielded lower returns of five to six percent. However, that’s still not a bad percentage, especially since it’s annual.

Bonds are a very happy medium between the no-risk venue of a checking account and the somewhat risky venue of the stock market.

5. Blue Chip Stocks

Blue chip stocks have a greater degree of risk than keeping your cash in a checking account or buying government bonds. However, it’s not as risky as you might think. When the average person thinks of Wall Street, they probably think of movies like The Wolf of Wall Street, with images of cash flying through the air on one hand and a plummeting graph on the other. And while it’s true that all stocks go up and down in price every second, some stocks are a lot more stable than others.

Startup companies, especially in cutting edge industries like biotech and marijuana, are risky ventures. But established companies (Blue Chip Companies, as they are called) are very low risk. Think of companies that won’t be closing their doors anytime soon because they are branded and have an established market. This includes Coca-Cola, Walmart, Johnson & Johnson, and IBM. Generally speaking, you can invest in companies like these and keep your money parked there for life; watching it grow and collecting dividends.

6. Real Estate

Real estate is also considered to be a low risk investment; so long as it is not speculative. Moreover, there are ways for a casual retail investor to participate in a real estate investment with very little risk, such as allocating funds into a REIT.

In recent times, there are dozens of REITs on the market where you can deposit as little as $500, into the hands of a company that pools funds from investors and puts it into real estate.

If you have no experience in real estate and decide you are going to flip homes by purchasing foreclosures, fixing them up, and then putting them back on the market, that is going to hold a higher degree of risk (although there are plenty of established ways to mitigate that risk). But not all real estate is risky.

One of the biggest reasons that real estate is a lower risk investment is because it’s an asset with immediately tangible value: land and improvements on it.

For more tips on adding real estate to your portfolio, join our weekly Real Estate Investing Room. 

7. Mutual Funds

A mutual fund is a type of pooled investment vehicle where the shares that you buy are invested into a diverse portfolio of securities, like stocks, bonds, and sometimes other asset classes—like precious metals and actual cash.

The benefit of a mutual fund is that it is guided by a money manager or team of money managers who make executive decisions about how to grow the fund. This takes a lot of the need for research and strategizing away from the investors involved, making it a great entry point into the world of investing for someone who is dedicated to a full-time career path.

The return on mutual funds varies from fund to fund and from year to year, but over the course of a 15-year time span, typical returns range from eight to 10%.

Most banks offer a mutual fund or a variety of mutual funds, some of which are guaranteed to specific types of investments or industries. Other types of mutual funds are designed to match up with the life stage of the investor.

8. Pension Plans

A pension plan is a specific type of retirement plan offered by the company you work for (if they offer one). The beauty of a pension plan in terms of risk is that the return is guaranteed, even if the company is sold, and in most cases, even if the company goes bankrupt.

The burden of realizing returns on the investment is on the company or the investment firm they’ve selected to manage the pension fund, so even if the returns are less than optimal in a given year,  they will still need to shell out the specified amounts that are listed in the plan as long as you meet your obligation to fund it.

9. Annuities

An annuity is essentially a savings account with a life insurance company. You contribute an additional amount to your monthly premium, which is then set aside and invested. In return, once you reach a certain age, the life insurance company will begin sending you fixed payments. There are a wide variety of annuity options, and each one has different implications, so it’s important to review the terms with your insurance agent and make sure you understand them.

Like recession proof stocks or the security of a pension plan, a fixed annuity (not a variable annuity) can be a great way to plan for retirement with a guaranteed stream of income that has previously been arranged.

10. Precious Metals

One challenge for any investors is investing during inflation, when the purchasing power of every dollar diminishes. Inflationary climates and the bad economy they often accompany can wreak havoc on invested assets like stocks. One way around this is to invest a portion of your money in precious metals, like gold and silver. The prices of these precious metals tend to increase during adverse economic events, which helps stabilize your portfolio.

In terms of risk, these investments are very secure because they are timelessly valuable. The only issue for most investors is that they have a lower degree of liquidity—meaning it is not very easy to cash them out and use them to make actual purchases.

What Percentage of My Portfolio Should Be in Safe Investments?

The average financial advisor you speak with will most likely tell you that if you want to explore alternative investments that carry a higher risk, you should allocate no more than five percent of your portfolio to do so. The other 95% of the money you’ve chosen to invest should be in a more stable asset class of low risk investments. However, as we’ve seen, there is a whole range of returns on these, from money market funds to municipal bonds.

But the asset allocation between your cash investments and common stock and treasury securities will also depend on where you are in terms of life, whether you are managing your money yourself or if someone is managing it for you.

When you are younger, you will want to invest more in assets like stocks. Though they do fluctuate on a short term basis, over the course of decades they will realize much better growth than a municipal bond, money market fund or treasury inflation protected securities. When you are nearing the end of your investing journey, you will want to shift your assets to investments that can still grow, but that offer more stability, such as dividend stocks instead of stocks poised for growth. And when you enter retirement, you want to stabilize your portfolio with the best low risk investments that can offer a reliable source of funding for your wants and needs while also serving as an emergency fund.

So, a more nuanced answer to this question depends on how much risk tolerance you have as an investor, which in turn depends on what stage of life you are in.

Low Risk Investments Are Part of a Balanced Portfolio

High returns are always appreciated, but they also carry higher investment risk. By contrast, there are many safe investment alternatives that offer a decent fixed income opportunity. You just have to be patient.

For example, you may not think that micro investing your spare change into an investment option like a robo-advisor app can snowball into anything significant, but after several decades, even pennies and dollars can turn into seven figures.

If you are not investing for a living or buying and selling stocks, then your risk tolerance is going to be a lot lower than someone with large amounts of capital to leverage for exploring a high risk investment like a startup.

Take the time to learn about different investments and the degree of risk and reward associated with each, so you can be better equipped to captain the ship of your personal finances moving forward. One way to do this is by signing up for a free Infinity Investing membership. Not only will you learn how to create a balanced portfolio, but you’ll also gain access to expert-driven strategies to create long-term wealth.

Bonus Video