Investing money can be stressful for many laymen. There are so many options. Also, there is frequently a fear of losing the amount invested. Here are some low-risk options for investment.
General, ordinary savings accounts are extremely low-risk when it comes to saving money and investing. The biggest concern with traditional savings accounts is the loss of purchasing power because the rates have been low in recent years and have not kept up with inflation.
Officially known as certificates of deposit, CDs are another relatively save place to park money. They pay out more interest than savings accounts, but they tie up money for anywhere between 30 days and five year, and they have early withdrawal penalties.
Money Market Accounts
Money market accounts are very similar to savings accounts. Both have similar interest rates. Both have limited withdrawal opportunities. The difference between the two is the fact that money market accounts generally allow for check writing privileges.
By allowing insurance companies access to money up front, investors can access a fixed or variable stream of income, and this income usually lasts for life. The money is tax deferred until it’s actually withdrawn from the annuity. Like savings accounts or CDs, there are inflation risks with fixed annuities.
Many companies need money that they do not have on hand. Therefore, they choose to borrow for capital improvements or expansion. Corporate bonds can be classified as investment grade or junk bonds. The interest rates will vary, but will usually be higher than the rates offered by government bonds. \
The US government offers savings bonds. The face value of savings bonds ranges between $25 and $10,000. Interest on these bonds compounds twice a year. Investors can buy traditional EE bonds or series I bonds. The latter offer inflation protection.
Government Treasury bills are short-term investments that are backed by the full faith and credit of the United States government. The rates on these government securities are set at public auctions, and the term only lasts up to a year. T-bills are generally risk-free because of the government backing.
Like short-term T-bills, Treasury bonds are backed by the US government and its ability to borrow money. The terms on these bonds are 30 years, and they pay interest to investors every six months. There are risks tied to interest rates and inflation. Interest payments are free of state and local taxes.
These are also government-backed investments, and TIPS stands for Treasury Inflation-Protected Securities. These securities come with varying terms that range from five to 30 years, and they pay out a fixed interest rate twice a year. The principle of the investment will vary based on the rate of inflation. Like other government bonds and securities, these are backed by the full faith and credit of the government.
S&P Index Funds
While most of the other investments have a risk that’s tied to inflation, index funds cut down on that risk. They come with the risk of losing some principle at the expense of raising the likelihood of increased returns over the long run. Stock index funds allow for impressive diversification, which cuts down on the risk of one company going bankrupt.