Low risk investments are highly recommended for people who are inexperienced investors, structuring an emergency fund, don’t know what to do with their money, or who think they may require their money withdrawn in ten years or less.
Building an investment portfolio of any kind of oftentimes going to include low risk investments as a way to diversify and balance what you’re putting in. If you don’t know where to start with low risk investments, you should consider some of the investment opportunities in this list.
The following are the nine best low risk investments that yield high returns:
1. Bond fund investments
High quality bond funds are the best low-risk investments for investors who want to preserve their wealth for the long-term. Although the returns are generally low, government bond funds are easily among the investments carrying the lowest risk. Corporate bond funds are one way to slightly increase your rewards although the further away you move from government bonds, the higher the investment risk.
2. Certificates of deposits
A certificate of deposit is provided to a customer from their bank which guarantees a specific interest rate over time. The investment time period can be six months, a year, or five years on average. Any time money is withdrawn prior to the end of the investment period, there may be financial penalty. CDs are very low risk investments. They are a great place to put your money to withdraw it at a defined date in the future.
3. Bank savings
A general savings account at a bank or credit union is always going to be low-risk. A tax-free savings account or registered retirement savings plan are two well-known examples of bank savings. Your account value is not going to fluctuate very much. They are the best low risk investments if you need access to investment money any time.
Unfortunately, it’s also money which is easy to lose. If a savings account’s only paying 1 percent interest and inflation is 3 percent, this means you’re losing 2 percent every year in its purchasing power.
4. Money market accounts
Some banks offer what is known as a money market account which pays a higher interest rate than a standard savings account. You will likely be required to keep a minimum balance to qualify, and they work slightly different than money market funds. For more experienced investors, this is one area you may want to check out for low-risk investment.
5. Guaranteed investment certificate
A GIC is an investment that, when bought, you agree to lend an institution your money for a defined time period in return of receiving what you deposited at the end of the term. The best rated GIC investments are very low-risk, have no fees, usually pay a fixed rate of interest, some come with variable interest rates, and lastly, there may also be penalties on GICs if you choose to withdraw your money before the term’s up.
6. Short-term income fund
A short-term income fund is low-risk and is meant to provide a competitive monthly income for investors through targeting short-term, high quality fixed income securities that have been either issued or guaranteed by the federal, provincial, or municipal governments.
Much like the other low risk investments on this list, the returns are not necessarily going to be spectacular however you can rely on the consistency of your payments as well as a short-term income fund keeping your money safe day-in and day-out.
7. Balanced mutual funds
Balanced mutual funds, in general, are low-risk and high-reward investments which combine together stocks, bonds, and cash. They are meant to expose your investment across numerous assets. That said, if securities held by a fund goes down in value as it occasionally can, any balanced mutual fund can see a big dip in all or most of its money.
As unlikely as it is to happen and although balanced mutual funds are still technically a lower-risk investment, one still has to acknowledge there is a risk involved here.
8. Registered retirement investment fund
An RRIF is similar to an RRSP and is a low risk investment. With RRSPs, one needs to withdraw the money by the time they reach 71. At that age they can convert it to an RRIF. These investments grow in a tax-deferred manner however to create an RRIF, a minimum withdrawal amount is applied annually.
For retired age investors and those who are getting close to the age where RRSPs need to be cashed out, this is one of the better low risk investments you can make with your retirement funds.
9. Registered education savings plan
An RESP is a savings plan to put special savings as a parent for your child’s education post-high school. Although as a general investor, you may not think to put funds in an RESP first, if you’re a family and you know you will be saving for your child’s future education needs, this is something which can be considered.
You won’t lose anything you put in and it can provide you an education-specific savings account which many investors like as they get to track precisely how much of an investment they have.