Everyone is always looking for a new, high-yield investment option. While traditional investments in mini-bonds or mutual funds are safer than ever and tend to yield good returns, sometimes you want to take a risk on an alternative option. That’s where low-risk investments come in. These are typically investments that involve less risk than mini-bonds but still offer the potential for good returns. They may also involve more flexibility in the amount of money you can invest and how long those funds will be kept with you without losing interest.
Here are some of the low-risk investments:
Treasury Bills and Bonds
Treasury bills and bonds do not involve loss of principal. However, the problem with Treasury bills and bonds is that they do not offer much yield over time either, especially given the current interest rate environment in the global market, which was caused by quantitative easing by central banks around the world and a zero-interest rate policy imposed by central banks on their currencies (except for Japan).
Money Market Funds (MMFs)
Money market funds are great for people who want to invest in a safe, low-risk investment that offers a certain level of liquidity. MMFs typically charge more than other types of mutual funds, and they may only accept some investors as they are limited in number and size. However, many investors insist there is no better place to keep your money when you want instant access without penalty, especially during volatile and uncertain market periods.
Global Bonds (G-Bonds)
Global bonds are very similar to government bonds. The difference is that they are purchased outside a country’s financial system, in areas such as the London market, and the interest payments are made in dollars. Global bonds can be bought by anyone with a bank account or credit card with any major bank, and most companies have stood behind these investments by guaranteeing all deposits up to $250,000 per bondholder. Investors also get access to various investment options in addition to buying G-Bonds.
Mortgage Backed Securities
These types of bonds are backed by mortgages, making them solid investments. They have a lower interest rate risk than corporate bonds, a longer maturity than Treasury bonds, and offer protection against credit risk. MBS are typically structured products and can be sold just like any other type of financial security and easily bought on the secondary market.
Treasury Inflation-Protected Securities (TIPS)
These securities are low-risk investments because, like T-bills and T-notes, you get your principal back when the bond reaches maturity. A downside to buying TIPS is that you could lose money if inflation does not occur as expected. However, inflation has been downward for the past several years, even as the Federal Reserve indicated that it would continue its quantitative easing policy (QE) for the foreseeable future. If this trend continues, the inflation rate will remain low, which means that TIPS holders will not lose money if they hold onto those bonds until they mature.
Fixed annuities may be used to fund retirement accounts, and most of their advantages are that they are tax-deferred. In other words, once the money is invested in an annuity, it does not contribute to your income for a specific period, which can be beneficial since the return on investment is possible, but there is no tax liability. If a person needs liquidity in their investment (for example, when they cannot work), they can cash out of the account at any time or transfer it as needed to another account or company.
Preferred stocks may be considered a high-income fixed-income security. They offer a higher yield than most other investments, including high-yield corporate bonds. However, preferred stocks are not as safe as T-Bills or other securities. They also have the disadvantage of having a maturity date; at that date, the investor may either get their money back or buy shares to receive dividends on the stock’s value.
Some investment companies also allow investors to purchase preferred stock from different countries worldwide to diversify their portfolios and benefit from risk-free income while investing in these different markets.
This savings account offers limited investment options for the more conservative investor. The advantage of high-yield savings accounts is that they tend to have a better interest rate than other investments. However, this may not be a good idea if you have a significant amount invested in them or if time passes and interest rates have not increased as much as expected.
There are benefits and drawbacks to every type of investment. For example, there may be no risk involved with Treasury Bills and Bonds, but if interest rates go up or the economy fails to recover, you will have lost all your money. Therefore, if you are considering a certain type of investment, you should research before making your final decision.