When we think about investing, what comes to mind is almost always a high risk with the potential for high returns. In other words, we are led to believe that in order to get a big payoff from our investments, we need to take big risks. In reality, this is not always the case. There are ways to invest without risking anything more than you are willing to lose and still have a good chance of gaining high returns from low-risk investments. The trick is knowing where and how to find such investments. These investments are known as “low risk” because they involve little or no risk of losing your principal (initial investment). Most will probably also provide you with a guaranteed rate of return on that capital.
If you have money to invest, but not a lot, then a low-risk investment is just what you need. These investments are ones that won’t lose value over time and can be cashed out when necessary. However, that doesn’t mean they don’t come with risks of their own. You just have to know where to look to find them and which ones will give you the best return for the lowest risk possible. Low-risk investment options are perfect for someone new to investing or with only a small amount of capital to invest at once. There are many ways to invest small amounts of cash and gain high returns from low-risk investments. The trick is knowing which types of investments will give you that advantage.
As we’ve seen, the secret to successful low-risk investing is finding extremely safe investments. The question is, how much money do you need to invest in order to find such safe investments? The answer is 0.2%: the equivalent of $200 on a $1,000 investment. That may not sound like a lot, but it is enough to give you the kind of security you need to feel confident investing in low-risk investments. The idea here is that losing your $200 investment won’t really affect your life one way or the other. What’s more, if you’re careful, you can find safe investments that will return more to you than your initial investment.
A money market mutual fund (MMMF) is an investment fund that buys short-term debt securities with the technique of “investing in cash equivalents.” An MMMF’s objective is to preserve the purchasing power of your initial investment. MMMFs are relatively low risk since you’re investing your money in short-term debt securities like Treasury bills and commercial paper. These are safe investments that almost always pay the interest and principal on time. Although the interest rates are low (usually lower than 1%), they are guaranteed and will not fluctuate. MMMFs are the equivalent of the “savings account” of the investment world. You deposit your money and earn a low rate of interest, but it’s guaranteed.
One of the safest investments around is U.S. Treasury bonds. Treasury bonds are government debt security that matures in 10 years. Government debt securities are extremely safe because they are backed by the full faith and credit of the government. This means that if a government bond investor doesn’t get his or her principal back when it’s due, the government will pay that investor the money owed. There’s no risk that the government will default on its debt—it’s just too big a risk for the Treasury to imagine going into default. Because the risk of default is so low, the interest you earn from Treasury bonds is very low as well. The yield on Treasury bonds is currently around 2.5%. That’s less than the interest rate on a savings account, but again, Treasury bonds are backed 100% by the U.S. government. There’s no risk of losing your principal.
Savings bonds are a type of government-backed debt security like Treasury bonds. They are issued by the U.S. government and have a long track record of paying good interest rates and being safe investments. There are two savings bonds: the traditional paper savings bond and the electronic savings bond. The paper savings bond is issued in paper form and can be held as an investment. The electronic savings bond is bought through your TreasuryDirect account and can be used as collateral for a loan. Electronic savings bonds are purchased at face value and pay interest based on their “issue date” (when you buy the bond). The interest rate on savings bonds depends on the current market interest rate. Currently, the rate on savings bonds is 0%. That means you’re not guaranteed to get any return on your investment. Still, savings bonds are a safe investment with very little risk of losing money.
A Certificate of Deposit (CD) is a low-risk investment offered by banks. A CD is a type of debt instrument issued by a bank. As with Treasury bonds, the government backs the CD, so there is virtually no risk of losing your investment. CDs are low risk because you’re committing to a fixed term, usually between one and five years. At the end of the term, you either get your money back or can renew the CD for another term. You would lose money from an FDIC-insured CD in two ways. First, withdrawing your money from the CD before it matures will incur a penalty for early withdrawal. Second, if your bank goes bankrupt, you may not get all of your money back.
Exchange Traded Funds (ETFs) are low-risk investments that are perfect for people who don’t have much to invest. ETFs are baskets of stocks that track a specific index like the S&P 500. Most ETFs are stocks traded on American exchanges found in the commodities, technology, and healthcare industries. ETFs that track emerging markets are low-risk investments designed to have lower volatility over time. The prices of ETFs will change throughout the day based on the demand for their stocks. However, ETFs will never lose all their value as a single stock can. ETFs are also fairly easy to buy and sell on the stock market. You can purchase them with a small investment of as little as $100. ETFs are low-risk investments that come with very little downside risk. If the market goes down, the value of the ETFs will go down too, but not below what you originally invested. ETFs are perfect for investors who want to be diversified without having to learn complicated financial strategies. They’re also a great way to invest a small amount of money at one time without losing a lot of it.
As you can see, you don’t have to take huge risks to earn a decent return on your investment. As long as you choose low-risk investments, you’ll have a high chance of not losing your money and gaining high returns on low-risk investments. With a bit of research, you can find safe investments that pay good interest rates, provide returns higher than your initial investment, and have little or no risk of losing your money. Exchange Traded Funds (ETFs) are low-risk investments that are perfect for people who don’t have much to invest. Real Estate Investment Trusts (REITs) are also low-risk investments that have the potential to provide a high return. Hedge funds are low-risk investments designed to produce high returns by investing in a range of assets. Whatever kind of low-risk investment you decide to make, it’s important to do your research and choose the one that’s right for you.