Investing well is about balancing risk and reward. The unprecedented challenges facing the world economy have many savers looking to reduce their exposure to risky investments and move towards those with lower risk.
While it’s true that the amount of return you can get depends on how much risk (and losses) you are willing to accept, great investors make their living by balancing these forces.
While we can’t decide for you how much risk you are willing to take, we have structured this guide to give you a range of options based on zero, low, or medium risk for long-term investments.
Table of Contents
- The Top 15 Best Low-Risk Investments With The Highest Returns:
- Where To Start – Low-Risk Investing
- My Favorite Low-Risk Investment Right Now
- Long-Risk Investments That Require Zero Risk-Taking
- 1. Grab a Bank Bonus
- 2. Trade-Up To A High-Interest Savings Account
- 3. Open An Online Checking Account
- 4. Earn More Credit Card Rewards
- Best Low-Risk Investment Options
- 5. Certificate of Deposit
- 6. Money Market Account
- 7. Treasury Inflation-Protected Securities (TIPS)
- 8. US Savings Bonds
- 9. Annuities
- 10. Cash Value Life Insurance
- Medium Risk Investment Options
- 11. Crowdfunded Real Estate Investing
- 12. Dividend-Paying Stocks and ETFs
- 13. Corporate Bonds
- 14. Municipal Bonds
- 15. Preferred Stock
- The Bottom Line on Low Risk Investments in January 2024
- FAQs on Low to Medium-Risk Investments
Some of these options like picking up a bonus for switching banks, or getting into a higher-yield savings account carry zero risk. Other options could take some additional learning or planning on your part.
The Top 15 Best Low-Risk Investments With The Highest Returns:
Zero Risk Investments
Seriously, this is free money.
Still secure, minimal downside.
Medium Risk Investments
Losses can occur from time to time.
Where To Start – Low-Risk Investing
For anyone looking to start investing, I recommend just getting started small because nothing leads to learning faster than action. The easiest way to get started investing in a whole host of asset classes is through a “robo-advisor“.
My Favorite Low-Risk Investment Right Now
Fractional Real Estate
One of the historically lowest risk/highest return asset classes is real estate. The problem has always been that it’s really hard to get started with small amounts of money.
In recent years, great platforms like Fundrise have popped up and “democratized” access to real estate investments. This advancement makes real estate a very viable option for people looking for alternatives to the stock market.
With Fundrise, you can get started with a well-diversified portfolio of commercial and multi-family real estate with as little as $10.
Long-Risk Investments That Require Zero Risk-Taking
Ok, maybe these aren’t actual investments, but consider them smart money moves to make more money and optimize your finances at a baseline.
1. Grab a Bank Bonus
If you have some extra money you won’t need for a while, you can occasionally earn some free cash with a bank bonus from one of the nation’s best banks. Most banks will offer a bonus as an incentive for you to sign up, and these bonuses can be worth several hundred dollars on their own.
Bank bonuses are sometimes regional, however, and can depend on the local banks in your area and the products they offer.
In exchange for your bank bonus, you may have to set up a direct deposit to your new account or use a bank-issued debit card for a certain number of transactions within the first few months.
READ BEFORE YOU SIGN
Just remember to read through all the fine print to learn about any fees that might be levied and how you can avoid them.
By jumping through these hoops, you can usually earn a few hundred dollars for your efforts. Best of all, you won’t have to worry about losing a single cent of your deposit. And if you decide not to keep the account for the long haul, you can always close it once you earn the bonus and meet all of the bank’s requirements.
2. Trade-Up To A High-Interest Savings Account
If you’re looking for a risk-free way to earn some interest on your money, a high-yield savings account might be your answer. With these accounts, you’ll earn a nominal amount of interest just for keeping your money on deposit.
Other than opening your account and depositing your money, this strategy requires almost no effort on your part, either. The best high yield savings accounts offer competitive interest rates without charging any fees. Currently the highest savings rate goes to:
3. Open An Online Checking Account
Just like high-yield savings accounts, online checking accounts let you earn small amounts of interest on the money you deposit. If you’re going to park your money in the bank anyway, you could surely appreciate earning some interest along the way. Best of all, many online checking accounts charge zero or minimal fees to get started.
When looking for an online checking account that actually lets you earn interest, look for a bank with excellent customer service, a user-friendly online interface, and competitive interest rates.
If you want the utmost flexibility, it’s also important to seek out an account that doesn’t impose account minimums or deposit requirements. And if you want to withdraw money frequently, you’ll want to make sure you have access to local, no-fee ATMs as well.
4. Earn More Credit Card Rewards
Credit cards are not the devil. We all spend money, and when used properly, a credit card can help you earn cashback on your spending. By picking up a cash-back credit card, you earn “points” that translate into real money.
In reality, the “rewards” you earn with some of the top cards are far more lucrative than anything you might earn with a Certificate of Deposit or online savings account.
With credit cards I currently earn:
- 5% Back on Cable, Internet, Cell Service, and at Amazon and Target
- 3% Back on Dining and Travel
- 6% Back at the Grocery Store
- 2% Back on Gas
Here’s how these offers work:
Let’s say you picked up a Chase Sapphire Preferred® card and put your regular spending on it to earn the signup bonus. Once you spent $4,000 on your card in 90 days, you would earn 60,000 points worth $750 in travel ($600 in gift cards or cashback). If you spent that $4,000 on bills you would normally pay like groceries, daycare, or utilities, and paid your card off right away, this is the closest thing to “free money” you’ll ever find!
If you want to learn more about the easy money you can score with credit card rewards, check out our guide on the best cash-back credit cards.
Best Low-Risk Investment Options
These investment options carry a very small amount of risk overall. In turn, you won’t expect to make as much, but your money should be relatively safe and still earn yields.
5. Certificate of Deposit
No matter how hard you look, you won’t find an investment more boring than a Certificate of Deposit. With a Certificate of Deposit (CD), you deposit your money for a specific length of time in exchange for a guaranteed return no matter what happens to the interest rates during that time period.
Be sure and buy your CD with an FDIC-insured financial institution (up to $250k is insured). The longer the duration of the CD, the more interest the financial institution will pay.
For a quick low-risk turnaround, I recommend a CIT Bank 11-month No Penalty CD at 4.15%.
6. Money Market Account
A money market account is a mutual fund created for people who don’t want to lose any of the principal of their investment. The fund also tries to pay out a little bit of interest as well to make parking your cash with the fund worthwhile. The fund’s goal is to maintain a Net Asset Value (NAV) of $1 per share.
These funds aren’t foolproof, but they do come with a strong pedigree in protecting the underlying value of your cash.
It is possible for the NAV to drop below $1, but it is rare. You can park cash in a money market fund using a great broker like TD Ameritrade, Ally Invest, and E*TRADE or with the same banks that offer high-interest savings accounts.
While you may not earn a lot of interest on your investment, you won’t have to worry about losing vast amounts of your principal or the day-to-day fluctuations in the market.
7. Treasury Inflation-Protected Securities (TIPS)
The US Treasury has several types of bond investments for you to choose from.
One of the lowest risks is called Treasury Inflation Protection Securities, or TIPS. These bonds come with two methods of growth. The first is a fixed interest rate that doesn’t change for the length of the bond. The second is built-in inflation protection that is guaranteed by the government.
For example, you might invest in TIPS today which only comes with a 0.35% interest rate. That’s less than the certificate of deposit rates and even basic online savings accounts.
That isn’t very enticing until you realize that, if inflation grows 2% per year for the length of the bond, then your investment value will grow with that inflation and give you a much higher return on your investment.
TIPS can be purchased individually or you can invest in a mutual fund that, in turn, invests in a basket of TIPS. The latter option makes managing your investments easier while the former gives you the ability to pick and choose with specific TIPS you want.
Want to protect your portfolio from inflation? Purchase TIPS through a great broker like:
- TD Ameritrade
- Ally Invest
8. US Savings Bonds
US Savings Bonds are similar to Treasury Inflation-Protected Securities because they are also backed by the United States Federal government. The likelihood of default on this debt is microscopic which makes them a very stable investment.
There are two main types of US Savings Bonds: Series I and Series EE.
Series I bonds consist of two components: a fixed interest rate return and an adjustable inflation-linked return. They are somewhat similar to TIPS because they have the inflation adjustment as part of the total return. (You can see the current rates on Series I Bonds here)
The fixed rate never changes, but the inflation return rate is adjusted every 6 months and can also be negative (which would bring your total return down, not up).
Series EE bonds just have a fixed rate of interest that is added to the bond automatically at the end of each month (so you don’t have to worry about reinvesting for compounding purposes).
Rates are very low right now, but there is an interesting facet to EE bonds: the Treasury guarantees the bond will double in value if held to maturity (which is 20 years).
That equates to approximately a 3.5% return on your investment. If you don’t hold to maturity you will only get the stated interest rate of the bond minus any early withdrawal fees.
Another bonus to look into: if you use EE bonds to pay for education, you might be able to exclude some or all of the interest earned from your taxes.
Looking to purchase some Series I or Series EE Bonds? You can do that directly through TreasuryDirect.gov.
They don’t have to be scary things; annuities can be a good option for certain investors who need help stabilizing their portfolio over a long period of time.
If you’re in the market for an annuity, however, be aware of the risks and talk with a good financial advisor first.
Annuities are complex financial instruments with lots of catches built into the contract. Before you sign on the dotted line, it’s important to understand your annuity inside and out.
There are several types of annuities, but at the end of the day, purchasing an annuity is on par with making a trade with an insurance company. They’re taking a lump sum of cash from you.
In return, they are giving you a stated rate of guaranteed return. Sometimes that return is fixed (with a fixed annuity), sometimes that return is variable (with a variable annuity), and sometimes your return is dictated in part by how the stock market does and gives you downside protection (with an equity-indexed annuity).
If you are getting a form of guaranteed return, your risk is a lot lower. Unlike the backing of the Federal government, your annuity is backed by the insurance company that holds it (and perhaps another company that further insurers the annuity company). Nonetheless, your money is typically going to be very safe in these complicated products.
10. Cash Value Life Insurance
Another controversial investment is cash value life insurance. This life insurance product not only pays out a death benefit to your beneficiaries when you die (like a term life insurance policy) but also allows you to accrue value with an investment portion in your payments.
Whole life insurance and universal life insurance are both types of cash value life insurance. While term life insurance is by far a cheaper option, it only covers your death.
One of the best perks of using cash value life insurance is that the accrued value can not only be borrowed against throughout your life but isn’t hit with income tax.
While cash value life insurance isn’t for everyone, it is a clever way to pass some value onto your heirs without either side being hit with income tax.
Medium Risk Investment Options
All of these options carry more of an average risk profile and are variations of traditional stock/bond investing. You may want to consult a financial advisor when looking at these options.
11. Crowdfunded Real Estate Investing
If you like the idea of investing in real estate but shudder at the thought of being a landlord or home prices where you live are too expensive, real estate crowdfunding could be the solution!
Let’s say a developer has plans to build a 200-unit condominium in Las Vegas. In the past, he could only raise funds for this project from private investors in his network. These days, however, he can list his project on a real estate crowdfunding platform and anyone in the public can invest!
Fundrise operates like Lending Club, except all of the investments are geared toward real estate. They keep risks low and interest high by carefully vetting the projects they invest in.
12. Dividend-Paying Stocks and ETFs
One of the easiest ways to squeeze a bit more return out of your stock investments is simply to target stocks or mutual funds that have nice dividend payouts.
If two stocks perform exactly the same over a given period of time, but one has no dividend and the other pays out 3% per year in dividends, then the latter stock would be a better choice.
With dividend stock mutual funds, the fund company targets stocks that pay nice dividends and does all of the work for you.
13. Corporate Bonds
Unlike U.S. Treasury bonds, corporate bonds are not backed by the government. Instead, a corporate bond is debt security between a corporation and investors, backed by the corporation’s ability to repay the funds with future profits or use its assets as collateral.
Since you are taking on risk by investing in a company, the returns on corporate bonds are higher than other types of bonds, no matter how creditable the company’s reputation is. While that’s reassuring enough for some investors, if you’re looking for truly low-risk corporate investing, you should consider bond funds.
Bond funds come in the form of ETFs or mutual funds and help to diversify your investment across a number of bonds.
Robo advisors provide a great opportunity for investing in bond funds. If you’re looking to choose what types of funds to build into your portfolio but don’t want to deal with the hassle of constantly balancing your account and re-allocating funds, these might be best for you.
Start investing with as little as $100
- Create your own portfolio with any stock and/or ETF, for free.
- Invest in over 6,000 stocks and ETFs
- No annual or commission fees
- Choose from several expertly curated pies to help you invest your way
- Manage your investments from Android and iPhone apps
14. Municipal Bonds
When a government at the state or local level needs to borrow money, they don’t use a credit card. Instead, the government entity issues a municipal bond. These bonds, also known as munis, are exempt from Federal income tax, making them a smart investment for people who are trying to minimize their exposure to taxes.
Taxes on Muni Bonds
Most states and local municipalities also exempt income tax on these bonds but talk to your accountant to make sure they are exempt in your specific state.
What makes municipal bonds so safe? Not only do you avoid income tax (which means a higher return compared to an equally risky investment that is taxed), but the likelihood of the borrower defaulting is very low. There have been some enormous municipality bankruptcies in recent years, but this is very rare. Governments can always raise taxes or issue new debt to pay off old debt, which makes holding a municipal bond a pretty safe bet.
You can buy individual bonds or, better yet, invest in a municipal bond mutual fund at brokers like:
- TD Ameritrade
- Ally Invest
15. Preferred Stock
Adding on to the dividend stock theme is preferred stock. Preferred stock is a type of stock that companies issue that has both an equity (stock) portion and a debt portion (bond). In the hierarchy of payouts to forms of investments, preferred stock sits between bond payments (which come first) and common stock dividends (which come last).
Preferred stocks are not traded nearly as heavily as common stock, but do have less risk than the common stock. It is just another way to own shares in a company while getting dividend payments.
You can track down preferred stock investments at:
The Bottom Line on Low Risk Investments in January 2024
As you get closer to retirement, it’s important to reduce your risk as much as possible. You don’t want to start losing capital this late in the game; since you have many years of retirement ahead of you, you want to preserve your cash.
The best low-risk investments can help you do just that. By letting you earn nominal amounts of interest on your money with little risk, you can help your nest egg keep up with inflation without losing your shirt. Just remember to read the fine print and educate yourself along the way. And if you’re ever in doubt over an investment product or service, speak with a qualified financial advisor and ask as many questions as you can.
Check out some of our individual stockbroker reviews to help you get a better grasp on what will meet your investment needs:
FAQs on Low to Medium-Risk Investments
The lowest-risk investment is typically a savings account at a bank or credit union. Savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions, so your money is safe. They also have very low minimum balance requirements and allow you to access your money at any time. However, they typically have low-interest rates, so you may not earn a lot of money from your investments.
Medium-risk investments are those that carry a moderate level of risk, and they may offer the potential for higher returns than low-risk investments. However, there is also a higher chance that you could lose money.
Some examples of medium-risk investments include:
1. Mutual funds: These are investment vehicles that pool money from multiple investors and invest in a diversified portfolio of stocks, bonds, and other securities.
2. Exchange-traded funds (ETFs): These are similar to mutual funds, but they are traded on stock exchanges like individual stocks.
3. Corporate bonds: These are debts issued by companies, and they may offer higher interest rates than government bonds. However, they are slightly riskier because they are not backed by the government, and the company could default on its payments.
4. Individual stocks: Buying individual stocks carries more risk than investing in mutual funds or ETFs because you are betting on the performance of a single company rather than a diversified portfolio.
Individual stocks can offer the potential for higher returns but are also subject to market swings. If you are investing in stocks, consider dividend stocks as a solid option.
Some investments have zero risk, such as investing in a U.S. Treasury bill or a certificate of deposit from a bank. These investments are guaranteed by the federal government, so investors are virtually guaranteed to get their principal back plus interest.