The Best Low-Risk Investments In 2021

Key Takeaways


The best way to build a successful investment portfolio is to focus on one main thing: balance. By including various investment types, you can help maximize your profits while minimizing your overall risk. To properly execute this strategy, you will need to focus on both high and low-risk investments. But where exactly do you start?

Low-risk investments represent the perfect entryway to a profitable portfolio. There are opportunities available for almost everyone, each requiring different amounts of skill, capital, and time to get started. Keep reading to learn more about the best low-risk investments to make this year.

What Are Low-Risk Investments?

Low-risk investments are financial opportunities with only a small chance of losing some or all of the money you put in. A few common examples of low-risk investments are bonds or Certificates of Deposit (CDs). Low-risk investments are typically recommended for individuals who are new to investing, preparing for retirement, or diversifying their portfolios.

The appeal of low-risk investments is in the name, and they generally perform as predicted. This benefit does come with a tradeoff: low-risk investments do not appreciate in value as quickly compared to high-risk investments, such as stocks. Because of this, it is generally recommended that investors choose a mix of low and high-risk investments if they want to maximize returns.

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12 Best Low-Risk Investments

There are a few factors to take into consideration before deciding where to invest. As you read through the following options, think about how much time and money you have to dedicate to each investment type. Remember, while many low-risk options require a small amount of capital to get started they will take time to become profitable. With that being said, here are some of the best low-risk investments available:

  1. High-Yield Savings Accounts

  2. Money Market Accounts

  3. Certificates Of Deposit

  4. Cash Management Accounts

  5. Treasury Notes, Bills, Bonds, & TIPS

  6. Corporate Bonds

  7. Preferred Stocks

  8. Dividend Paying Stocks

  9. Mutual Funds

  10. Stable Value Funds

  11. Fixed Annuities

  12. Immediate Annuities

High-Yield Savings Accounts

High-yield savings accounts are an alternative to traditional savings accounts and offer an increased annual percentage yield (APY). Simply put, APY is the interest your savings earns in a year. Banks can increase this number by strictly operating online, allowing them to keep operational costs low and pass on unique benefits to account holders.

Money Market Accounts

Another way to make your bank account work for you is through a money market account. Most banks offer these and again provide a higher interest rate when compared to savings accounts. Account-holders can spend money directly from the account, though there are typically balance minimums and transaction limits.

Certificates Of Deposit

Certificates of Deposit (CDs) are a low-risk investment type offered by banks as a way for them to secure capital. When you purchase a CD, you are giving the bank permission to use your funds however they need to. In exchange, you will receive a higher interest rate than you would from a savings account. Note that you cannot withdraw funds from a CD before its expiration, or you risk losing some of the interest earned (and, in some cases, part of your initial investment).

Cash Management Accounts

Cash management accounts also operate similarly to bank accounts, though traditional financial institutions do not offer them. These accounts are instead typically available through online brokerages or robo-advisors. In most cases, they are still backed by the Federal Deposit Insurance Corporation (FDIC). The benefit of a cash management account is a higher APY, which allows you to grow your savings account faster.

Treasury Notes, Bills, Bonds, & TIPS

The U.S. Treasury issues a few different investment options that mature over time. These include treasury notes, treasury bills, bonds, and treasury inflation-protected securities (TIPS). These opportunities are thought to be low-risk because they are issued and backed by the U.S. government. They offer potential profits in the form of interest.

Corporate Bonds

Corporate bonds are an alternative to U.S. Treasury bonds and allow investors to earn interest by working with private companies. There can be some risk involved, as private companies can default or go out of business. The best way to minimize risk while investing in corporate bonds is to research stable, profitable companies.

Preferred Stocks

Preferred stocks represent shares in a private company, and they typically pay investors quarterly in the form of dividends. While preferred stocks trade on an exchange, they are more similar to bonds than traditional stocks. This is because preferred stocks offer fixed returns regardless of market performance (though there is still some risk associated with investing in private companies).

Dividend Paying Stocks

On a scale of low to high-risk investments in the stock market, dividend-paying stocks can be considered one step above preferred stocks. This is because dividend stocks are subject to traditional stock market fluctuations, though they do pay regular cash dividends (making them less risky than traditional stocks). If you mind your due diligence when selecting a company, dividend-paying stocks can be a low to moderate risk addition to your portfolio.

Mutual Funds

Mutual funds represent the opportunity to diversify your portfolio with a single investment. They can be thought of as a pool of investor funds, which are then used to buy various other investment types such as stocks, bonds, and securities. The purpose of mutual funds is to maximize returns for each investor while minimizing overall risk. Sounds perfect, right? Choosing the right mutual fund involves a lot of research, and with any investment type, there is still some risk involved. Read our guide to mutual funds to learn more about how to get started.

Stable Value Funds

Does your employer offer a 401(k) plan for retirement? If yes, stable value funds are one way you can invest within your retirement account. These funds are essentially contracts issued by banks or insurance companies that generate interest over a predetermined amount of time. They are an excellent low-risk option because they typically offer shorter terms than bonds or CDs.

Fixed Annuities

Fixed annuities can be thought of as similar to CDs, though they are issued by insurance companies rather than banks. These low-risk investments allow you to accumulate interest in a tax-deferred account. They can be paid out as a lump sum or over time, depending on the contract. Fixed annuities are typically best used as a way to prepare for retirement, as funds are not accessible without a penalty until you turn 59½.

Immediate Annuities

If you are looking for a low-risk investment with regular income, immediate annuities might be the right option. They are more frequently used as a way to guarantee retirement income. There is some risk involved when purchasing annuities, for example, if the insurance company were to go out of business. However, this risk can be minimized by researching and comparing different companies.

Latin American real estate

4 Best Low-Risk Real Estate Investments

When investors think real estate, “low-risk” is not always the first thing that comes to mind. However, there are several real estate strategies that are thought to be lower risk when compared to other investment types. These investments can be a great way to increase your reward, while still shouldering a minimal amount of risk. Here are the best low-risk real estate investment types:

  1. Long-Term Rental Properties

  2. Short-Term Rental Properties

  3. Buy-and-Hold Real Estate

  4. Multi-Family Homes

Long-Term Rental Properties

Real estate is an interesting asset class because it is always in demand. This is what makes long-term rental properties such a great investment opportunity. There is a need for rental houses in almost every market in the country, though you should always research your market before getting started. When managed correctly, they can provide consistent cash flow for as long as you own the property.

Short-Term Rental Properties

Thanks to the creation of platforms like Airbnb and VRBO, short-term rental properties have become easier to manage than ever before. In certain markets, they can be extremely profitable, even after cleaning and maintenance costs are factored in. Short-term rentals are often considered low-risk because their demand is predictable. They can be priced differently based on the season to maximize profitability (for example, higher prices in the summer for a beachfront property).

Buy-and-Hold Real Estate

Buy-and-hold real estate refers to the strategy of purchasing a property, typically for below market value, and selling it for a profit after it goes up in value. Buy-and-hold properties can take years to appreciate, depending on how fast the market moves in your area. However, in the meantime, the property can be rented out for a profit. Buy-and-hold is thought of as a low-risk investment because it can be executed without difficulty with the right market research.

Multi-Family Homes

Multi-family homes represent a great first step into real estate investing while also being relatively low-risk when compared to other investment types. Multi-family properties can even be purchased using FHA loans, which are backed by the government to provide low interest rates to qualifying buyers. For example, you could purchase a duplex to live on one side and rent out the other (thus generating long term cash flow).

Summary

The best investment portfolios will strike a balance between high and low-risk opportunities. This is often the only way to maximize returns without placing your finances entirely on the line. When it comes to low-risk investments, there are so many options for investors to choose from. Consider your availability and ideal investment timeline before getting started. If you have already dipped your toes in the water, think about adding a low-risk real estate investment to your portfolio. The sooner you get started, the sooner you can begin securing your financial future.


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Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies