12 Low Risk Investments That Offer a High Return
- Author: Monica Jackson
- Posted: 2024-02-25
Some low risk options provide better results than others. Still, the higher your risk, the higher your chance of return. That being said, if you’re near to retirement, or you’re about to start paying for your child’s college education, you do not want to risk losing everything right before you need to get access to your funds. Here are a few options that offer low risk with an acceptable return.
1) Peer-to Peer-Lending
Peer-to-peer lending is where you lend money to others and they pay you back with interest. The best way to mitigate your risk is to be picky and closely screen those you lend to. Pick loans that offer the best rate and offer the least risk.
Online tools can help you balance between getting a high annual return while having a low default rate. Working with companies like Lending Club or Prosper is a good way to get started with peer-to-peer lending. It provides the option of a higher return without the risk that comes from high risk investments.
2) High Interest Savings Accounts
But these are not low-risk, they are no risk. By simply keeping your money deposited, you receive a set amount of interest. This strategy requires no effort on your part, and there are many high yield savings accounts that offer good interest rates without charging you fees. Look for a bank that allows you to easily deposit money, access your account online, and has friendly customer service.
3) Credit Card Rewards
For most people, the idea of credit card and investment seem to be polar opposites. However, if you get a cashback credit card, you can earn points that you can turn into actual cash in your pocket. In some cases you can earn a better return on your money with credit card cashback programs than you can from a CD or from an online savings account.
For example, you get the Chase Sapphire Preferred Card. If you spend $4,000 in three months, it equates to 50,000 points, or $500 cash back. If you use the card wisely and spend the money on things that you would use anyway, like grocery bills, and if you pay the card off right away, that is free money.
4) Annuities
Annuities don’t have to be scary, especially if your goal is to increase your portfolio over time. Talk to a financial advisor to understand the complexities of annuities before you sign on the dotted line. Basically, you’re making a deal with an insurance company. You give them a chunk of cash and they are giving you a guaranteed return rate.
5) Treasury Inflation Protected Securities
The U.S. Treasury has different bond investments you can choose from. Treasury inflation protected securities are very secure and come with either a fixed or built in inflation rate of growth. While the initial interest rate you receive may be lower than what you would get from a savings account, the fact that it is connected to inflation means that at the end of the day you get a higher return on your investment.
6) Money Market Funds
This is a great idea for those who do not want to lose any principle on their investment. While they’re not foolproof, and while you may not earn a lot on your investment, you’re not going to lose your principal with the day-to-day market fluctuations.
7) Municipal Bonds
Local and state governments needs to borrow money. So it might as will be from you. Municipal bonds are exempt from federal income tax, and the likelihood of the US government defaulting on paying back the money you give them is very low. You can buy individual bonds or invest in a bond mutual fund using brokers.
8) US Savings Bonds
This investment is backed by the United States federal government. The amount you can return may vary depending on inflation, but the fixed rate never changes. The treasury guarantees that your bond will double if held for 20 years. This means you to get a 3.5 percent return on your investment.
9) Cash Value Life Insurance
Life insurance of this sort does more than pay out a death penalty benefit to your beneficiaries when you die. It also allows you to accrue value on your payments. You can borrow against cash value life insurance policies while you’re still alive, and you’re able to avoid income tax.
10. Certificate of Deposit
Although it is a boring investment, it is very low risk. Deposit your money for a set period of time and the return you get is preset. You are locked in until the CD matures. If you take it out early, there is a penalty equivalent to three months’ worth of interest.
11. Online Checking Accounts
With an online checking account, you earn a steady amount of interest based on the money you have deposited. Many online checking accounts have zero or minimal fees. For the best results, look for the most user-friendly and flexible online bank with good customer service.
12. Bank Bonuses
The basic idea of bank bonuses is that in exchange for opening a savings account with a bank and leaving your money in the bank for a predetermined amount of time, the bank will provide you a bonus of up to $250. So if you have some cash laying around that you will not need for a little while, this is a safe option with a decent return.
If are willing to accept medium risk, you may also want to consider dividend paying stocks, mutual funds, and preferred stocks. Of course, the closer you get to retirement, the less risk you want. You don’t want to lose capital late in the game.