How to invest safely: A guide to low-risk options

 Summary 

What are safe investments? 

Investments have always been a popular way to turn a profit. The process of investing some of your money now in exchange for a higher return in the future is a tool that many people use to generate personal wealth and cultivate more financial capital as their careers and lives progress.  

There are lots of different types of investments available, and they all come with unique pros and cons. Understanding which ones are most compatible with your budget, income, patience, and risk tolerance is key to choosing the right investments – and so is understanding which options are the safest.  

The safest investments typically result in low returns, but they do come with the benefit of low to no risk of loss in the process. In contrast, riskier investments tend to produce higher returns. 

If you are new to investing or only have access to limited funds, it’s far wiser to opt for a safe investment strategy. But what exactly does that look like?  

A financial advisor can help you understand the safest ways to invest and give you expert advice about your investment portfolio. We'll connect you to an SEC-regulated financial advisor that suits your needs. Get matched now. 

What is the safest way to invest money? 

Before we dive into the safest ways to invest, it’s important to remember that no investment is 100% safe.

By nature, all investment strategies come with the risk of and potential for loss, no matter how small that potential might be.  

However, you can significantly reduce your potential for loss by choosing a low-risk investment.

It’s also important to note that, in exchange for the predictability of these investments, you’ll need to accept that there is a lower return potential. This means that the financial yield of a safe investment is likely to be much lower than for more volatile investments such as stocks or crypto.  

The safest high-yield investment options are backed by the US Treasury Department or affiliated with the Federal Deposit Insurance Corporation (FDIC), which is a type of financial insurance. This is because they come with government-level insurance that protects your funds from being stolen – or from bank failure that results in any loss.  

6 safe investment options

All of the investment types we’ll be looking at fall into one of these two categories detailed above.

From savings accounts to T-bills, here are six of the safest investment options to choose from:  

1.      FDIC-insured savings account  

When it comes to the safe and conservative handling of investments, few organizations can compete with the national bank. Banks that the FDIC insures can protect your funds and offer consistent growth with comparatively less risk than other investment models.  

To make this kind of investment, all you need to do is open up a high-interest savings account at a bank that the FDIC insures. The minimum amount that you can invest in an FDIC-insured savings account will depend on your bank, but the maximum is usually capped at $250,000.  

Advantages: The main advantage of investing in a savings account at an FDIC-insured bank is that your money will be legally protected from bank failure and theft.  

Disadvantages: An FDIC-insured savings account typically offers low rates of return. Depending on the bank you choose, there may also be extra fees for transfers and withdrawals.  

2.      Money market accounts (MMAs) 

Money market accounts (MMAs) are deposit accounts that pay the account holder interest based on current (but often changeable) interest rates on the money market. They are known for being accessible and relatively safe investment types that yield slightly higher returns than a regular savings account.  

Similarly to an FDIC-insured savings account, you can pursue this kind of investment by opening up an account with a trusted bank or credit union and waiting for the returns to accumulate before cashing in.  

Advantages: Money market account rates are affordable enough and allow you to make withdrawals at an ATM. This ensures you can access cash at your convenience. 

Disadvantages: To avoid a monthly fee, the money in your account always needs to be above a certain minimum limit – which will vary depending on the account and the bank you have set it up with.  

3.      Money market funds 

Not to be confused with money market accounts, money market funds are essentially open-ended mutual funds that invest in short-term debt securities on your behalf. Some examples of such debt securities include the US Treasury and commercial papers.  

Money market funds are considered very low risk, making them one of the safest high-yield investments available.  

Advantages: The interest rate associated with money market funds is pretty high — comparable to Certificates of Deposit (CDs) but without the rigidity.  

Disadvantages: To invest in a money market fund, you have to open an account with a mutual fund company. Unfortunately, most of the mutual fund companies in the US do not have local branches, making it difficult to open up an account with them. The fall share can also be slightly volatile.  

4.      Series I savings bonds 

There are a few different Series Bonds you can invest in (such as Series EE), but Series I is considered to be the one with the lowest risk. When you invest in a Series I savings bond, you can earn a fixed interest rate plus the added bonus of an inflation rate – both of which are determined by the current Consumer Price Index (CPI). This can result in higher financial returns.  

Advantages: Compound interest is semiannual, helping your investment grow at a much faster pace than other investment strategies, which are typically just annual. The minimum Series I savings bond investment is also a modest $25, making it one of the more accessible options on this list.  

Disadvantages: Despite its eye-catching inflation adjustment, the rates are still relatively low, and the accounts are only available online.  

5.      Treasury inflation-protected securities (TIPS) 

TIPS are bonds issued by the US government created to offer people financial protection from inflation. This investment type is closely intertwined with the CPI. As the CPI fluctuates, so do security principles, which directly impact how much interest you earn.  

High inflation means higher interest and low inflation means lower interest. CPI is likely to see many ups and downs throughout your investment, which usually results in reasonable returns. TIPS are considered one of the more stable investments available on the public money market.  

Advantages: You can both buy and sell TIPs quite easily. They are constantly in demand, resulting in stable interest rates. TIPS can also be obtained at the Treasury or through banks and brokers.  

Disadvantages: Due to how ubiquitous they are, investing in TIPS requires skill and research. However, that situation can be solved by hiring a financial investment advisor.  

6.      Treasury bills, bonds and notes 

Treasury bills, also known as T-bills, are widely considered to be the safest investment strategy for new investors. T-bills are basically small loans to the government, which the government then keeps for you, uses, and then pays you back, plus a little something on the side.  

As T-bills, bonds, and notes are backed by the security of the US Treasury, the risk of failure to repay or theft is almost nonexistent.  

Treasury bills work as follows: you buy a bill or a bond for less than face value, and once they have matured, you get paid back the full value of what you would’ve initially paid.  

Bills are purchased on a famously short-term basis (usually between 3 weeks and one year), while notes are fixed for 2-10 years and bonds for up to 30 years. You can purchase any of these Treasury investments at TreasuryDirect.gov or through a broker.  

Advantages: Safe, reliable, and highly flexible. The market for Treasury investments is vast, so they are always in demand, and you can trade them on the money market for a fair price.  

Disadvantages: Similar to TIPS, the commodification of Treasury investments means they can be difficult to navigate without professional experience or a keen eye for detail. There can sometimes also be additional fees.  

How do I choose the safest investments? 

While it is true that no investment comes with no risk, low-risk options do exist and are worth pursuing if you have the funds. Investment types that are backed by the US Treasury and FDIC insurance can offer you the safety you are looking for while still yielding favorable financial results.  

Speaking to a financial investment advisor prior to making any investment decisions is the best way to ensure that you get your money’s worth. It can also empower you to make smarter financial decisions with your returns and cultivate a deeper, more lucrative knowledge of investments in general.  

If you need some advice or direction with regard to making safe but profit-driven investments, Unbiased can help you find a financial advisor to meet your needs. The right financial advisor for investments can help you grow your money.

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