What are the lowest risk investments you can make? I recently did a video about high risk investments. In contrast, today I will be going over 5 of the lowest risk ways that you can invest your money. These are investment strategies that are guaranteed to put you to sleep. You will check your investments down the road and go, am I even investing? The answer is yes, barely. Low risk investments like this have an incredibly low rate of return. Nonetheless, it is interesting to look at these investment strategies!
1. Certificate Of Deposit
This is the safest investment that exists. It is also the most boring, and some would barely call this investing. You can get a CD or certificate of deposit through your bank or your broker. With a CD, you deposit your money for a specified length of time in exchange for a guaranteed rate of return. This rate of return is a fixed interest rate and it does not change. Interest rates on CD’s are incredibly low. There is virtually no risk of losing any money.
2. Treasury Inflation Protected Securities
These TIPS are bonds that have two methods of growth. The first is a fixed interest rate that does not change for the length of the bond. The second is a guaranteed inflation protection where the rate of interest rises with inflation. For example, a TIPS may have a fixed interest rate of 0.35%, but if inflation is 2% the return is 2.35% total. The only way you can lose money on this type of investment is if we see deflation instead of inflation and it exceeds the fixed interest rate. TIPS can be purchased individually or through a mutual fund that exposes you to multiple bonds.
3. Peer To Peer Lending
This is where you invest your money by lending it to someone else. They, hopefully, pay you back the principal as well as interest. If you screen your loans and choose the best rated borrowers this can be a very low risk investment. If you do not screen your borrowers this can be a risky investment. Lending Club is a site that facilitates peer to peer lending, and they have a 5% default rate. Some sites allow micro loans as small as $25. Returns of 4% to 7% are typical.
4. Money Market Funds
This is a type of mutual fund characterized as having low risk and a low return. This fund includes a portfolio of short term high quality investments. The idea behind a money market is not to lose any principal. The fund pays a little interest while parking your cash. The goal of a money market fund is to keep the net asset value at $1 a share. These funds are meant to be a place to park your cash, they are not meant to be a long term investment.
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.
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