What is the Safest Investment Right Now?
Unsettled, volatile markets can shake your faith in risky investments like stocks. That’s why many investors move their money into safe investments when volatility strikes. More stable, lower-yielding safe investments help protect your cash—and may even provide modest growth in difficult times. As the economy faces high inflation and the Federal Reserve raises interest rates in an effort to limit the rise in prices, the U.S. could be headed for a recession in 2023. Building a portfolio that has at least some less-risky assets can be useful in helping you ride out volatility in the market.
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What is the Safest Investment Right Now? The trade-off, of course, is that in lowering risk exposure, investors are likely to earn lower returns over the long run. That may be fine if your goal is to preserve capital and maintain a steady flow of interest income. But if you’re looking for growth, consider investing strategies that match your long-term goals. Even higher-risk investments such as stocks have segments (such as dividend stocks) that reduce relative risk while still providing attractive long-term returns. If you’re looking for safe havens from tough markets, these eight safe investments offer lower risk than stocks—not to mention peace of mind for your investments.
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What to consider
Depending on how much risk you’re willing to take, there are a couple of scenarios that could play out:
- No risk — You’ll never lose a cent of your principal.
- Some risk — It’s reasonable to say you’ll either break even or incur a small loss over time.
There are, however, two catches: Low-risk investments earn lower returns than you could find elsewhere with risk; and inflation can erode the purchasing power of money stashed in low-risk investments. If you opt for only low-risk investments, you’re likely to lose purchasing power over time. It’s also why low-risk plays make for better short-term investments or a stash for your emergency fund. In contrast, higher-risk investments are better suited for higher long-term returns.
Here are the best low-risk investments in January 2023:
- High-yield savings accounts
- Series I savings bonds
- Short-term certificates of deposit
- Money market funds
- Treasury bills, notes, bonds and TIPS
- Corporate bonds
- Dividend-paying stocks
- Preferred stocks
- Money market accounts
- Fixed annuities
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Overview: Best low-risk investments in 2023
High-Yield Savings Accounts
High-yield savings accounts are just about the safest type of account for your money. These Federal Deposit Insurance Corporation (FDIC)-insured bank accounts are highly liquid and immune to market fluctuations. Just keep in mind, if inflation is higher than your annual percentage yield (APY), your money could lose purchasing power. Interest rates are generally low across the board for deposit accounts—and they’ll stay that way for the foreseeable future. However, you can earn modest returns with the best savings accounts, even if they won’t always keep up with inflation.
Series I Savings Bonds
If you want to fend off inflation as well as earn an interest rate, check out Series I bonds. These safe investments are designed to protect your money from losing value due to inflation, since the Treasury adjusts your interest rate every six months to keep pace with rising prices. An important caveat: I Bonds earn interest for up to 30 years. You must hold them for at least a year before you can cash out. If you liquidate your I bonds before you’ve held them for at least five years, you forfeit three months of interest.
Certificates of Deposit
If you don’t need immediate access to your cash but you’d like to earn a bit more than a savings account, certificates of deposit (CDs) are a good choice, says Kevin Matthews, a former financial advisor and the founder of investing education website Building Bread. Plus, CDs enjoy the same FDIC insurance amounts as other types of deposit accounts. As with savings accounts, CDs are likely to see low rates for the next couple of years. While the rates can be higher on longer-term CDs, remember that they lock your money up, reducing your liquidity, and they generally charge penalties if you withdraw your cash early (usually a few months of interest). While there are no-penalty CDs, these generally come with lower yields.
Money market funds
Money market funds are pools of CDs, short-term bonds and other low-risk investments grouped together to diversify risk, and are typically sold by brokerage firms and mutual fund companies. Unlike a CD, a money market fund is liquid, which means you typically can take out your funds at any time without being penalized. Money market funds usually are pretty safe, says Ben Wacek, founder and financial planner of Guide Financial Planning in Minneapolis.
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U.S. Treasury Bonds
U.S. Treasury bonds are widely considered the safest investments on earth. Because the United States government has never defaulted on its debt, investors see U.S. Treasuries as highly secure investment vehicles. You can buy government bonds directly from the U.S. Treasury or on secondary markets, via an online brokerage platform. Matthews cautions against the secondary market, since resellers often tack on added costs whereas you can buy U.S. Treasuries free of fees at TreasuryDirect.gov. You can also invest in mutual funds and exchange-traded funds (ETFs) that exclusively hold U.S. Treasuries. This frees you from the complications of purchasing individual bonds and removes the hassle of reselling the on the secondary market if you need cash before the bond matures.
If you want higher yields, consider corporate bonds. They generally offer more appealing interest rates but also carry more risk as few companies have the repayment record of Uncle Sam. It’s possible to purchase bonds via an online broker, but Matthews warns that many bond transactions charge higher fees than stock transactions. To avoid fees and reduce the risk any one company defaults, look to bond mutual funds and bond ETFs, which invest in hundreds or thousands of company bonds. Most index-based ETFs and mutual funds will be available without trading fees from most brokerages these days, but it’s important to double check as well as to look out for load fees on mutual funds.
Stocks aren’t as safe as cash, savings accounts or government debt, but they’re generally less risky than high-fliers like options or futures. Dividend stocks are considered safer than high-growth stocks, because they pay cash dividends, helping to limit their volatility but not eliminating it. So dividend stocks will fluctuate with the market but may not fall as far when the market is depressed. That’s because dividend-paying companies tend to be more stable and mature, and they offer the dividend, as well as the possibility of stock-price appreciation. One risk for dividend stocks is if the company runs into tough times and declares a loss, forcing it to trim or eliminate its dividend entirely, which will hurt the stock price.
Preferred stocks are hybrid securities with features of both stocks and bonds. They offer the income potential of bonds, thanks to guaranteed dividend payments, plus the ownership stake and appreciation potential of common stock. The potential appreciation of preferred stocks cuts both ways, however. You may see stronger increases in market value over time than bonds—as well as larger potential decreases in value when the market falls. So why are they safe investments? Because preferred stock dividends are guaranteed in nearly all cases, meaning you’ll get income no matter what the stock is doing.
Money market accounts
A money market account may feel much like a savings account, and it offers many of the same benefits, including a debit card and interest payments. A money market account may require a higher minimum deposit than a savings account, however. Rates on money market accounts may be higher than comparable savings accounts. Plus you’ll have the flexibility to spend the cash if you need it, though the money market account may have a limit on your monthly withdrawals, similar to a savings account. Money market accounts are protected by the FDIC, with guarantees up to $250,000 per depositor per bank. So money market accounts present no risk to your principal. Perhaps the biggest risk is the cost of having too much money in your account and not earning enough interest to outpace inflation, meaning you could lose purchasing power over time.
An annuity is a contract, often made with an insurance company, that will pay a certain level of income over some time period in exchange for an upfront payment. The annuity can be structured many ways, such as to pay over a fixed period such as 20 years or until the death of the client. With a fixed annuity, the contract promises to pay a specific sum of money, usually monthly, over a period of time. You can contribute a lump sum and take your payout starting immediately, or pay into it over time and have the annuity begin paying out at some future date (such as your retirement date.) A fixed annuity can provide you with a guaranteed income and return, giving you greater financial security, especially during periods when you are no longer working. An annuity can also offer you a way to grow your income on a tax-deferred basis, and you can contribute an unlimited amount to the account. Annuities may also come with a range of other benefits, such as death benefits or minimum guaranteed payouts, depending on the contract.
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