10 Best Investment Options for the Risk Averse
If you want to grow your wealth, compounding your money through investing is the best way to do it. However, the idea of investing can be intimidating if you’re risk averse by nature. Fortunately, there are ways to invest your money that are considered “safe” and yet still effective. Here are the best 10 investment options for those who want to play it (relatively) safe.
1. Certificates of Deposit
A certificate of deposit allows you to earn a higher interest rate on your funds than with a traditional savings account. The difference between a CD and a savings account is that you agree to keep your money in the CD for a fixed term — which can range from a couple of months to a couple of years. If you withdraw your funds early, you typically have to pay a fee, but the trade-off of the higher interest rate could be worth it!
2. Online Checking and Savings Accounts
Online banks don’t have the high overhead costs that brick-and-mortar banks do, and many of these online institutions pay those savings forward to their customers by offering higher interest rates on checking and savings accounts.
3. Money Market Funds
Money market funds are made up of different securities, like municipal bonds or corporate bonds. When you put your money into a money market fund, your money is pooled with other investors’ money and managed by a fund manager. Because your money is pooled, the risk of loss is lessened than if it were just your money. Plus, you get the benefit of a fund manager deciding where to invest your money rather than having to figure it out yourself.
4. Treasury Inflation-Protected Securities
Called TIPS for short, these investment bonds are issued by the federal government and come with a guarantee that your investment will rise with the inflation rate. The interest rate with these bonds is typically low, but it’s the inflation rate that makes these investments pay off over time. And because they’re backed by the federal government, they’re very low-risk.
5. U.S. Savings Bonds
Savings bonds are also issued by the federal government, which also makes them a safe investment choice. These bonds earn interest for up to 30 years at a fixed interest rate.
6. Peer-to-Peer Lending
Although there is some risk involved with peer-to-peer lending, there is an opportunity for high returns with this investment. Using an online service like LendingClub, you agree to give a borrower a loan, and they agree to pay it back with interest. To make this type of investing less risky, you can pool funds with other investors.
7. Real Estate Investment Trusts
Real estate is a relatively safe investment because it doesn’t follow the same extreme fluctuations as the stock market. REITs allow you to pool your money with other investors to invest in large-scale properties, like shopping malls or apartment complexes. The money is used to operate the properties, and in exchange for your investment, you’ll receive a share of the income the property earns.
An annuity is a contract you make with an insurance company. You provide the company with money up-front, either through a lump-sum payment or a series of payments, and the company agrees to pay you back at an agreed-upon time. They’re generally low-risk, and are a popular way to ensure retirement income. However, annuities are a relatively complex type of investment, so it’s best to work with a financial planner or insurance expert if you’re interested in investing in an annuity.
9. Reward Credit Cards
When you use a credit card to make purchases, you are in a sense investing in the credit card company. And if you use your cards right, this can really pay off. Many credit cards offer cash back and other rewards that can be used for travel, gift cards and more. Just be sure to pay your credit card bill on time and in full to make this a good investment.
10. Paying Off Credit Card Debt
This isn’t an investment in the traditional sense, but it’s definitely an investment in a secure financial future. If you have credit card debt, you’re losing money on interest each month that goes by. Prioritize paying off this debt ASAP before investing your money in anything else.
Gabrielle Olya and Joe Stone contributed to the reporting for this article.
Last modified on April 6th, 2020
I am a personal finance expert with over 15 years in the space and run my own consulting firm. My work's been featured on Business Insider, US News & World Report, the Huffington Post, Yahoo! Finance, The Street, MSN, Yahoo Finance, CBS MoneyWatch, The Motley Fool, Investopedia, Money.com, AOL Finance, GOBankingRates.com and more. I've also worked with Fortune 500 companies, interviewed top CEO's, celebrities entrepreneurs, experts and influencers finding out their top investing and personal finance advice. I'm passionate about helping people with their financial goals no matter how small or large they may be!
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