What's the Safest Investment with The Highest Return?
Investing properly is about balancing risk and return. The world economy is facing unprecedented challenges, which has led many savers to want to reduce their risk exposure. While it's true that the amount of return you can earn depends on how much risk (and loss) you're willing to accept. Great investors make a living balancing these forces. While you can't decide how much risk you want to take, we've put together this guide to give you various options based on zero, low or medium risk.
Investing can provide you with another source of income, help build up your retirement fund, or get you out of a future financial snag. Investing helps you grow your wealth, allows your financial goals to be met, and increases your buying power over time. Or maybe you just sold your house and earned some money, then it is a wise decision to let that money work for you, and grow over time. In this article, you can learn about safe, high-return investments. Topics include low-risk investments, high-yield investments, and where to invest money to earn good returns.
There are many ways to invest, from very safe options such as CDs and money market accounts, to medium risk options such as corporate bonds, and even higher risk options such as stocks, S&P 500 index funds, and REITs. You can find investments that offer a wide range of returns to suit your risk profile. It also means that you can combine your investments to create a complete and diverse – and safer – portfolio.
What to Consider Before You Invest
Risk and time play a big part in deciding how to allocate your investment.
Conservative investors or those on the verge of retirement may be more comfortable allocating a larger percentage of their portfolio to less risky investments. It's also great for people saving for short and medium term goals.
If you want to grow your wealth you can choose low risk investments, which provide modest returns or you can take more risk and aim for higher returns.
Listed below are different types of investments with varying levels of risk and potential return.
- High-yield savings account- Money market accounts
- S&P 500 index fund
- Short-term corporate bond funds
- Certificates of deposit
- Growth stocks
- Treasury securities
- Municipal bond funds
- Government bond funds
- Dividend-paying stocks
- Growth stock funds
- Rental housing
- Nasdaq 100 index fund
What is a Safe Investment?
An investment can be called a safe investment if it provides a good return with relatively small risk or no risk at all. Although there are many investment options, every investment cannot be considered a safe investment.
Some safe investment options include certificates of deposit (CDs), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS). That's because investments such as CDs and bank accounts are backed by the Federal Deposit Insurance Corporation (FDIC) of up to $250,000. If the bank is unable to pay you back, you will get your money from the FDIC. Here are details of each of these safe investment options in the sections below.
There are certain characteristics that you can use to determine if a certain investment is a safe investment or not.
1. A safe investment usually has a diversified portfolio. You are investing in different segments of the market, so if one sector falls, you can cover it by making a profit in another segment.
2. Safe investments have low risks. This means that the rate of return is low and is usually guaranteed.
3. Safe investment is determined by the length of time you make the investment. For example, short-term stock market investments are generally not considered safe, but if you take a timeframe of say 10 years, they are likely to be a safe investment option for you.
Despite the above factors, a safe investment keeps your principal intact. The possibility of losing the principal money you have invested is negligible in a safe investment.
Safe investment choices include certificates of deposit (CD), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS). That's because investments such as CDs and bank accounts are backed by the Federal Deposit Insurance Corporation (FDIC) of up to $250,000. If the bank is unable to pay you back, you will get your money back from the FDIC. I'll be detailing each of these safe investment options in the sections below.
High Interest Savings Accounts
If you're looking for a risk-free way to earn interest on your money, a high-yield savings account might be your answer. With this account, you will get a nominal amount of interest just for keeping your money on deposit.
Apart from opening your account and depositing your money, this strategy also requires almost no effort on your part. The best high-yielding savings accounts offer competitive interest rates without charging any fees.
When it comes to low risk investment options, high yield savings accounts are one of the best ways to invest your money. Although the potential for high earnings is usually lower than in the stock market, up to $250,000 of your money is FDIC insured per account – provided you deposit the money with an FDIC-insured institution.
While a savings account is not technically an investment, a high-yield savings account gives you a modest rate, without the risk of losing your money. It's very easy to manage, as there isn't much to do once you open your account.
When choosing an account, you also need to look for a bank with a good reputation for providing quality customer service, easy access and online account management, as well as easy deposits.
Government Bond Funds
Government bond funds are essentially mutual funds that invest in bonds. The fund is sponsored by the US government as a way to pay off debt, and fund other projects.
This is the best investment type For: low risk investors; beginner investors; and individuals looking for cash flow
While debentures are a low-risk investment, because they are backed by the government, the fund itself is not. Because of that, it is affected by inflation and fluctuating interest rates.
Money Market Funds
A money market mutual fund is a collection of CDs, short-term bonds and other low-risk investments grouped together to create diversification without much risk, and are usually sold by brokerage firms and mutual fund companies. Why invest? Unlike CDs, money market mutual funds are liquid, meaning you can usually withdraw your funds at any time without being penalized. Risks: Money market funds are usually fairly safe. The bank tells you what rate you will get, and the goal is that the value per share will not be less than $1.
Money market mutual funds are mutual funds created for people who don't want to lose the principal of their investment. The fund also tries to pay a small amount of interest to make your cash parking with the fund worthwhile. The purpose of the fund is to maintain a Net Asset Value (NAV) of $1 per share.
These funds aren't easy, but they come with a strong pedigree in protecting the underlying value of your cash.
It's possible for NAV to fall below $1, but it's rare. You can park your cash in a money market mutual fund with great brokers like TD Ameritrade, Ally Invest, and E*TRADE or with the same bank that offers high interest savings accounts.
While you may not earn a lot of interest on your investment, you don't have to worry about losing a large amount of your principal or the day-to-day fluctuations of the market.
Municipal Bond Funds
These investments are issued by state and local governments and invest in a number of different municipal bonds or munis. Generally, any interest earned is not subject to federal taxation and may even be exempt from state and local taxes.
Best For: Investors just getting started looking for ways to diversify without having to research individual bonds. This fund is also great for cash flow investors.
The risk associated with municipal bonds is in case of default. When a bond issuer defaults, or is unable to make an income or principle payment, you may lose some or all of your investment. While cities and states rarely go bankrupt, they can. However, it is a very safe investment with quite high returns. Having multiple bonds in a municipal fund is a great way to spread out the potential risk and diversify. Investors also have the flexibility to sell or buy stocks every weekday, making municipal bonds a highly liquid investment.
Dividend Paying Stocks and ETFs
The easiest way to squeeze more returns out of your stock investment is to target stocks, or mutual funds that have good dividend payouts.If two stocks perform exactly the same over a period of time, but one has no dividends and the other pays a 3% dividend per year, then the latter stock would be the better choice.
Picking individual stocks is not easy, use some of the trading tools at TD Ameritrade or E*TRADE to help you target dividend stocks, and comes with the risk that the company might falter and lower your investment.
The safer way is to invest the money in a dividend stock mutual fund.
With this type of mutual fund, mutual fund companies target stocks that pay good dividends and do all the work for you. You get diversification too.
CIT Bank No-Penalty 11 Month CD
You probably won't find an investment more tedious than a Certificate of Deposit. If you're in the market for one of these low-risk investment vehicles, you can get it through your bank, credit union, or even through your investment broker.
With a Certificate of Deposit or CD, you deposit your money for a specific period of time, in exchange for a guaranteed return no matter what happens to interest rates during that time period.
As long as you obtain a certificate of deposit with an FDIC-insured financial institution, you are guaranteed a return of your principal as long as your total deposit with that particular financial institution is less than $250,000. The government guarantees you won't incur any losses, and the financial institution will pay you interest on that.
How much interest you earn depends on the length of the CD term and the current interest rate, which is when you purchased your CD.
CD rates are generally fairly low, but you can usually earn more interest if you get a certificate of deposit for a minimum period of 1-2 years.
CIT Bank has a well-deserved reputation for offering some of the most competitive CD prices.
Fund rise
If you love the idea of investing in real estate but shudder at the thought of becoming a landlord or flipping a house, a REIT is your ideal investment.
A real estate investment trust is almost same or similar to a mutual fund. They provide investors with the opportunity to buy shares in real estate ventures, earning income from projects, which can range from offices to healthcare facilities, to retail space and residential properties and everything in between.
Because real estate properties make money, so do shareholders, in the form of dividends. There are a number of ways to invest in REITS, with Fund rise being the easiest, and one of the most profitable.
Raise funds operate like a Loan Club, except that all investments are directed at real estate. They keep risk low and interest high, and carefully scrutinize the projects in which they invest. You can start investing in the Rise Fund Beginner's Portfolio for as little as $500, making it an attractive option for beginner investors.
Lending Club
P2P Lending is one of the short-term investments that is highly recommended. Instead of buying stock in a company (and its future profits), you lend your money to someone else in the hope that they will pay you back.
If you screen your loans poorly, peer to peer lending can be quite risky. However, screening properly and selecting only the best rated loans is a great way to get a decent return with minimal risk.
Lending Club has done a great job in setting up their collection practices to protect investors.
Treasuries
Debt issued by the Treasury is backed by full trust, and credit from the U.S. government, making it as risk-free as an FDIC-insured bank account.
Best for: Money you know you won't need before the bond's due date; more than $250,000 FDIC insured; investors are willing to give the flexibility to seek slightly better returns
Once you step out of the realm of FDIC insured investments, you step into a different world. However, for a 2% return on your savings account, you may need at least a few investments that take a bit more risk, if you want to build a strong portfolio. The next tier of banking products in terms of higher risk and return are bonds, which are basically structured loans made to large organizations.
An important caveat here involves the liquidity of the treasury. Unlike CDs, you cannot withdraw your money before the due date, not even for a penalty. That doesn't mean you're stuck — you can easily go out and sell the bonds on the secondary market. But by that time, you've gone from buying and holding treasuries to maturity (very safe) to trading bonds (very less safe).
While your coupon payments are completely predictable and secure, the face value of your bonds will rise and fall over time based on prevailing interest rates, stock market performance and a number of other factors. Granted, it could work in your favor, but that's because you've taken an additional risk. So, if you are not quite sure that you can hold the bond to maturity, it is definitely a riskier investment.
Fortunately, for risk-averse investors, there are options for bonds that are similar to your bank account insured by the FDIC, guaranteed by the full trust and credit of the U.S. government: These are bonds issued for government debt, known as T-bills, T. -notes or T-bonds, depending on how long it takes to mature. On your part, the treasury is going to act like a CD in many ways. You invest at a set interest rate, and maturity dates range from one month to 30 years from when you bought the bond. You will get regular "coupon" payments for interest when you hold it, and then your principal is returned when the bond matures.
Treasury Inflation Protected Securities (TIPS)
The US Department of the Treasury has several types of bond investments for you to choose from.
One of the lowest risks is the Treasury Inflation Protection Securities, or TIPS. These bonds have two methods of growth. The first is a fixed rate of interest that does not change over the term of the bond. The second is the built-in inflation protection which is guaranteed by the government.
Regardless of the inflation rate that grows while you hold TIPS, the value of your investment will increase with that inflation rate.
For example, you might invest in TIPS today, which comes with a 0.35% interest rate. That's less than a certificate of deposit interest rate, and even a basic online savings account.
It's not very interesting until you realize that, if inflation is growing at 2% per year for the term of the bond, then the value of your investment will grow with that inflation and give you a much higher return on investment.
TIPS can be purchased individually, or you can invest in a mutual fund that, in turn, invests in a TIPS basket. The latter option makes managing your investments easier, while the former gives you the ability to choose the specific TIPS you want.
Corporate Bonds
Corporate bonds are not supported by the government. In contrast, a corporate bond is a guarantee of debt between a corporation and an investor, backed by the corporation's ability to repay funds at a future profit or use its assets as collateral.Because you are taking a risk by investing in a company, the return on corporate bonds is higher than any other type of bond, no matter how good the reputation of the company. While that may be reassuring to some investors, if you are looking for a truly low-risk corporate investment, you should consider a bond fund.
Bond funds come in the form of ETFs or mutual funds, and help to diversify your investments in a number of bonds.
Summary
Most investors want to make investments in such a way that they get the highest possible return and as quickly as possible without the risk of losing the principal they have invested. This is the reason why many investors are always looking for top investment plans, where they can double their money in a few months or years with little or no risk.
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