Takeaways
- Capital preservation is a critical component in curating your investments.
- Traditionally, low-risk investments include CDs, annuities, and savings accounts.
- Investors trade the reward of outside market returns for lower, predictable yields.
- Investing professionals advocate for a spectrum of assets to create a diversified portfolio.
- Securing your financial base with low-risk investments increases your stability and sets the foundation for increasing your net worth over time.
Most financial advisors advocate for a well-diversified portfolio. With wild swings in the stock market, it can be challenging to predict which way the market is heading next. Whether in a bull market when stocks are soaring or a bear market when capital flows to risk-off assets, figuring out how to generate a return will increase your net worth over time.
When it comes to investing money, there is always a tradeoff between risk and reward. However, you can take advantage of great opportunities in almost any market cycle. During economic times, when the Federal Reserve raises the federal funds rate, there is more opportunity to earn interest income and grow your money. Conversely, when budgets tighten, investors flock to cash-flow-stable traditional companies that pay regular dividends.
9 Low-Risk Investments
Here are nine low-risk investments across different asset classes that can provide tremendous benefit to padding your pockets:
1. High-Yield Online Savings Accounts
An online high-yield saving account is one of the fastest and safest products for generating interest income. These savings vehicles are offered by banks, credit unions, and other financial institutions that compete to provide you with the highest Annual Percentage Yield (APY).
During rising inflation, investors flock to high APY bank accounts because they are super liquid, offer easy access from your bank’s mobile app, and generate a hearty stream of passive income. All you need to do is apply for an online savings account to get up and running in minutes and fund your account to reap the reward of interest income.
Best For: Generating interest income with idle cash savings
Investing Risk: Low, FDIC-insured funds are insured up to $250,000
Liquidity: Very High
Where to Purchase: Through an online bank account. Here are our picks for the best high-yield savings accounts.
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Quontic High Yield Savings Account
Smart Money Rating: 5/5
APY: 4.50%
Required Minimum Balance: $100
2. U.S. Treasuries
U.S. Treasury bills, also known as T-bills by investors, are short-term debt securities that pay investors interest. The U.S. Treasury Department issues these debt securities with terms of less than a year to raise money to operate the federal government.
They are the backbone of many investing portfolios. T-bills are considered “risk-free” investments, and investors use their APY as the “risk-free rate” in financial models because T-bills are backed by the full faith and credit of the U.S. government, which guarantees that interest and principal payments are made on time.[1]
You can purchase U.S. Treasury Bills in $100 increments and trade them on the secondary market. If you don’t want to own treasury bills directly, you can invest in a Bond ETF instead.
Best For: Creating a safe and reliable income stream
Investing Risk: Low, Backed by the U.S. Treasury
Liquidity: High
Where to Purchase: Through TreasuryDirect.gov
3. Certifications of Deposits
Certificates of Deposits are savings products banks and credit unions offer that pay you a fixed interest rate on your account funds. Unlike savings accounts, where your money is sitting in an easily accessible account, with a CD, you give your cash to a bank to use during your CD term. Because of this “lock up” period, CD interest rates are higher than savings accounts.
There are many types of CDs, and the terms can range from three months to five years. While you can technically access your finds in a CD, you might have to pay a small fee to get your funds. CDs are a popular route to generate passive interest with idle cash. If you are saving for a large purchase, like buying a car or saving for a down payment, they can be excellent ways to earn money toward those savings goals.
Best For: Generating a return on idle cash
Investing Risk: Low, FDIC-insured funds are insured up to $250,000
Liquidity: Medium
Where to Purchase: Sign up with your online bank or credit union. See our list of the best CDs.
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Alliant Credit Union CD
Smart Money Rating: 5/5
APY: 5.10 % (Terms Apply)
Required Minimum Balance: $1,000
4. Money Market Funds
Money market accounts are interest-bearing accounts offered by banks, credit unions, and other financial institutions. They are hybrid savings and checking accounts that give users the advantage of earning interest while getting the check-writing abilities, ATM access, and debit cards associated with a traditional checking account.
Interest paid on money market funds varies based on interest rates established by the Federal Reserve. When the federal funds rate increases, money market funds interest rates tend to follow suit. This is different from fixed-interest products like CDs or T-Bills.
Best For: Account holders who need traditional banking functions and to generate a return on idle cash
Investing Risk: Low, FDIC-insured funds are insured up to $250,000
Liquidity: High
Where to Purchase: Sign up with your online bank or credit union.
5. Dividend Stocks
Investing in stocks is generally considered riskier than investing in fixed-income securities. However, the risk decreases significantly for an elite group of stocks with consistent cash flow, regular business, and great long-term business prospects. These dividend-paying stocks are known as Dividend Aristocrats.
Dividend Aristocrats are companies listed on the S&P 500 that have paid and increased dividends to shareholders (or owners of common stock) for the last 25 years. These are the mavens of fixed-income investors and those wanting to earn passive income.
Best For: Investors who want capital appreciation and dividend income.
Investing Risk: Medium
Liquidity: High
Where to Purchase: Investors can buy high-yielding dividend stocks through their online stock brokerage account.
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Acorns Website
Acorns Investing App
Smart Money Rating: 5/5
Intro Offer: $20 Bonus Investment
Best For: Beginner Investors
Annual Fee: N/A
6. Corporate Bonds
Triple-A-rated corporate bonds are considered incredibly safe investments. Rating agencies like Moody’s and Standard & Poor’s regularly issue ratings on corporate-grade bonds, delineating the quality of debt issued by these companies.
Most companies issuing corporate bonds are publicly traded companies listed on major stock exchanges that raise capital through the debt markets rather than the equity markets (initial public offering or follow-on financing). For example, large companies like General Electric (GE) issue corporate bonds to fund company projects and product launches or boost working capital.
Best For: Fixed-income investors who want a balance between yield and risk.
Investing Risk: Medium
Liquidity: High
Where to Purchase: You can purchase corporate bonds through your online brokerage account.
7. Treasury Inflation-Protected Securities (TIPS)
Preserving your purchasing power over time is one of the pillars of successful investing. If you have idle cash, inflation will depreciate your holdings over time. For example, the same $1,000 you had in savings will not buy you as much as $1,000 in ten years unless you earn a return equivalent to inflation. That’s where Treasury Inflation-Protected Securities (TIPS) help investors.
Treasury Inflation-Protected Securities (TIPS) are debt securities issued by the U.S. Treasury Department (also issuing T-bills). TIPS are securities that act like Treasury bonds, but the value of the principal fluctuates with the ebb and flow of inflation and deflation, ensuring that the value of your investment remains stable over time. You can invest in $100 increments, and terms come in 5-, 10-, and 30-year maturities.[2]
Best For: Investors worried about long-term or runaway inflation.
Investing Risk: Low
Liquidity: Low
Where to Purchase: Through TreasuryDirect.gov
8. Annuities
An annuity is a contract between you and an insurance company that guarantees an income stream for a fixed time frame. There are many different types of annuities, such as immediate, deferred, variable, indexed, or fixed beneficiaries, each with a unique structure and appeal.
In the accumulation phase, depending on the annuity you select, you pay into your annuity or make a lump sum payment. When you advance to the annuitization phase, you start receiving annuity payments.
If you don’t have a hearty 401(k), Roth IRA, or Traditional IRA balance and need retirement income, you can trade cash for guaranteed income payments with an annuity. The insurance company takes your cash, and in exchange, you start receiving regular monthly payments.
Best For: Investors who want a guaranteed income stream, usually nearing retirement.
Investing Risk: Low
Liquidity: Low
Where to Purchase: Investors can buy annuities through an insurance company.
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(Rocketdollar Website)
Rocketdollar Alternative IRA Investments
Investments: Real Estate, Cryptocurrency, Commodities, Startups
Accounts: Direct Custody, Checkbook, and Solo 401(k) IRAs
Required Minimum Investment: $0
9. Life Insurance
Many people probably don’t consider life insurance an investment, but it certainly can be one. Life insurance is a financial product offered by insurance companies and other financial institutions designed to provide financial security by paying beneficiaries a guaranteed lump-sum payment or income stream.
Policyholders pay insurance premiums monthly, quarterly, or yearly, depending on the plan. In exchange, you get peace of mind knowing that if anything were to happen to you, your beneficiaries could pay for regular monthly expenses (like mortgage payments), college education, funeral costs, or help with retirement income.
While life insurance policies aren’t the most thrilling investment, they are incredibly low risk and offer high returns. Plus, if you don’t need your policy, you can cancel it, and some policies allow you to exchange your policy for cash.
Best For: Investors who want a guaranteed income or inheritance for beneficiaries in the event of their unexpected passing
Investing Risk: Low
Liquidity: Low
Where to Purchase: Insurance companies, banks, or credit unions.
Smart Summary
You can preserve and boost your net worth by investing in tried-and-true securities that give your investment portfolio consistent returns. While you might not earn extreme above-market returns, like some active investing funds, you can continuously increase your portfolio through capital appreciation, interest income, and dividend payments. In the right markets, low-risk investment isn’t synonymous with low returns. Whether you are a beginner investor or highly experienced, you can put these investing strategies to work and reach your financial goals.
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Frequently Asked Questions
Interest income is the interest paid to investors based on a fixed or variable rate on a savings product or debt security. For example, receiving interest payments from a savings account is technically taxable passive income. The same is true for interest payments received on a corporate bond. Read more about how to file your taxes.
Publicly traded companies with hefty cash flow make dividend payments. Investors receive dividends after the board of directors approves a dividend payment. These cash payments are made to investors to reward them for investing in the company’s stock. Investors will receive these payments directly into their brokerage accounts or opt to receive the dividends into the company stock through a Dividend Reinvestment Program (DRIP).
Many personal finance experts advocate for saving cash in two stages. The first is an emergency fund of $1,000 to $3,000, which you can put in a checking or savings account. The second tranche is a slush fund with three to six months of living expenses. Many investors place these funds in an easily accessible, high-yield savings account.
(1) TreasuryDirect.gov. FAQs About Treasury Marketable Securities. Last Accessed January 13, 2025.
(2) Treasury Direct. Treasury Inflation-Protected Securities. Last Accessed January 13, 2025.
