The following is a guest post from one of our friends discussing low-risk investments for your portfolio. While we typically discussing dividend growth investing, and have even wrote about 5 Foundation stocks for a dividend investors portfolio, there are other low risk, non-dividend stock investments for individuals. This article will discuss five of those other options. Please see the following article to learn more!
If having your investments go down and losing everything you put in isn’t something that you can afford or stomach happening, low-risk investing is the way to go as MoneyWise notes. While low-risk investments earn only modest returns and inflation can erode purchasing power, but they be a good way to start your portfolio.
With a Bank CD, the bank promises to pay a set rate of interest over a specified term, provided you leave it intact until that term ends. They’re always loss-proof unless the money is taken out early which usually means losing some of the interest you’ve earned. You may also get hit with a loss of principal depending on the bank, making it a must to check rates and carefully review all the rules before opening one.
Capital One offers a wide range of CDs with yields that tend to be highly competitive, consistently among the top nationally available options.
Peer-to-Peer platforms aren’t no risk, but they are on the lower end of the risk scale, allowing investors to lend money directly to businesses and individuals at a higher rate of return than cash on deposit. They often receive an attractive yield, as long as the borrower doesn’t default. They have mostly delivered with no issues for a number of years now, but of course, your cash won’t be guaranteed. They’ve even be used for new industries like real estate and banking.
Money Market Funds
Money market funds are pools of short-term bonds, CDs and other low-risk investments. They’re grouped together to provide diversification without very much risk and are usually sold by mutual fund companies and brokerage firms. They’re different from a CD as they’re liquid, meaning you can typically take out funds at any time without a penalty and they’re generally quite safe.
Annuities are a secure way of delivering guaranteed income in retirement. They insure you against outliving the fund by paying out for as long as you live and can also hedge you against inflation increases. There are several types of annuities, but purchasing one is on par with making a trade with an insurance company – basically, they’re taking a lump sum of cash from you and in return provide you with a stated rate of guaranteed return. It may be fixed or variable, and sometimes dictated in part by how the stock market does while giving downside protection with an equity indexed annuity. When you get a form of guaranteed return, the risk is much lower.
Treasury Inflation Protection Securities (TIPS)
There are multiple kinds of bond investments offered by the US Treasury. One of the lowest-risk is known as TIPS, for Treasury Inflation Protection Securities. It comes with two methods for growth, one is built-in inflation protection guaranteed by the government, and the other is a fixed interest rate that never changes during the length of the bond. The investment’s value will rise with the inflation rate that grows during the time you hold it. They can be purchased individually, or you can invest in a mutual fund that invests in TIPs which makes managing investments easier.
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