8 Investment Strategies to Consider for Low Risk Investing

Investing is key to building wealth and ensuring financial stability, though different investments carry varying levels of risk. Low-risk investment strategies can offer more security while delivering modest returns. They are useful for individuals nearing retirement, those with low risk tolerance, or anyone seeking to balance riskier investments with safer options. These strategies aim to protect assets and reduce potential losses, making them an important part of a diversified investment plan.

A financial advisor could help you create an investment plan that includes low-risk investment strategies designed to meet your needs and goals.

Why Should You Own Low-Risk Investments?

Low-risk investing can offer several benefits that can contribute to a well-rounded and secure financial portfolio. These investments aim to reduce the risk of losing your principal , making them a common choice for investors. Unlike high-risk investments, which could earn higher returns in exchange for higher risks, low-risk investments can offer greater stability, especially during economic downturns.

Many low-risk investment options, such as bonds and fixed annuities , also offer regular interest payments or dividends , which can provide a steady income stream. This predictability can be particularly valuable for retirees or individuals who rely on investment income to cover living expenses.

Investors also use low-risk investments to diversify their portfolios . This strategy aims to reduce overall volatility and improve risk-adjusted returns by combining low-risk and high-risk investments to capitalize on growth and protect against downturns.

8 Low-Risk Investments to Consider

If you want to invest in low-risk investments, start out by researching and selecting options such as savings accounts, CDs, or government bonds, and allocate funds according to your financial goals and risk tolerance. Here are eight common options to consider:

1. U.S. Treasury bills, notes and bonds are government securities that investors typically consider safe investments because they are backed by the U.S. government. Treasury bills (T-bills) are short-term securities that mature in one year or less, while Treasury notes and bonds have longer maturities. They offer fixed interest payments and are ideal for investors seeking reliable, low-risk returns.
2. Treasury inflation-protected securities (TIPS) are a type of U.S. Treasury security designed to protect against inflation. The principal value of TIPS adjusts with inflation so that your purchasing power can remain intact. They pay interest twice a year, and the interest rate is applied to the adjusted principal, providing a hedge against inflation while offering a low-risk investment option.
3. Fixed annuities are insurance products that provide a guaranteed interest rate and regular income payments over a specified period. They offer a safe and reliable way to grow your savings and generate income, making them a popular choice for retirees. Fixed annuities are not vulnerable to market fluctuations, providing stability and peace of mind.
4. High-yield savings accounts typically feature higher interest rates than traditional savings accounts , allowing you to earn more on your deposits while keeping your funds easily accessible. These accounts are generally insured by the FDIC , providing a safe and liquid investment option for those seeking low-risk returns.
5. Certificates of deposit (CDs) are time deposits offered by banks with fixed interest rates and maturity dates. They provide a guaranteed return on investment and are FDIC-insured. You are required to lock in your funds for a specific period, but there are higher interest rates than traditional savings accounts that you receive in exchange for reduced liquidity.
6. Money market funds invest in short-term, high-quality debt securities that aim to maintain a stable net asset value (NAV) . They typically deliver higher yields than traditional savings accounts and can be a fantastic option for low risk investing when you are seeking liquidity and safety. Money market mutual funds provide easy access to your funds and can be an excellent place to park cash while earning some interest.
7. Investment-grade corporate bonds are issued by companies with strong credit ratings and offer higher yields than government securities. Although they carry slightly more risk, they are considered a better option for low-risk investing when compared with equities. These bonds provide regular interest payments and can be a useful part of a diversified portfolio.
8. Dividend aristocrats are companies with a history of increasing annual dividends for at least 25 years. These stocks offer stable returns and reliable income through dividends, making them a low-risk investment choice for long-term investors . Dividend aristocrats are typically well-established companies with strong financials, providing a balance of growth potential and income stability.

Bottom Line

Low-risk investing is an essential part of a financial plan. This strategy can help preserve capital, provide steady income and diversify your portfolio, making it a popular choice for investors who seek stability. Though you should also note that since low-risk investments generally offer lower returns when compared with higher-risk options, you will need to strike a balance between both types of investments to create opportunities for substantial growth.

Tips for Investing

• A financial advisor can help you create a financial plan that will include low-risk investments. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• If you want to figure out how your portfolio will perform over time, SmartAsset's investment calculator can help you get an estimate .

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