Investing is an important part of a robust financial strategy. However, some investors have a lower risk tolerance. If you’re concerned about the volatility of financial markets but still interested in investing, read on for a quick guide to seven low-risk investments. And, as always, consult a financial advisor before starting any investment strategy.
- Treasury Bills
Government bonds are a solid investment choice for people looking to get a higher yield than they would with a high-yield savings account, while still keeping their money in a stable environment. Treasury bills are bonds issued by the US Treasury and backed by the government: making them more stable and reliable than traditional bonds issued by corporations. Treasury bill yields vary, but at the moment investors can expect a one-month return of around 2.22% on their investment, or up to 2.93% for longer-term bond periods.
Corporate bonds, issued by companies with an established presence on the market and a history of good performance, are considered another relatively safe investment option. In summer 2022, the yield for 10-year bonds is around 4.78%. However, when compared to treasury bills, the higher yield of corporate bonds is accompanied by a higher risk. If you sell your bonds early you may end up losing money, and there’s always a chance that the company who issued your bonds could go broke. Still, bonds offer a significantly lower level of risk when compared to traditional stock market investing.
- High-Yield Savings Account
A high-yield savings account isn’t technically an investment, because you’re not purchasing a financial asset—you’re simply saving your money in an account that offers a higher-than-average interest rate. The advantage of using a high-yield savings account is that you can withdraw money whenever you need it and, assuming you bank with a federally insured institution like HUECU, you're unlikely to lose money. On the other hand, your rate of return will be limited when compared to other low-risk investments like corporate or government bonds.
- Certificates of Deposit (CDs)
Certificates of Deposit, or CDs, offer a lower-risk investment option as compared to stocks or bonds, while paying a higher interest rate than what you’d get with a traditional savings account. When you purchase a CD, you’re agreeing to keep your money in the CD account for a specific period of time, and the issuing credit union or bank pays you interest. Annual percentage yield (APY) rates vary depending on your initial investment and term length. For example, HUECU is now offering 2.25% APY to Members who invest a minimum of $1,000 in a 15-month CD.1
- Preferred Stocks
A preferred stock offers low-risk investors an opportunity to earn dividends. Investing in preferred stocks is more risky than purchasing bonds, but less risky than investing in common stocks. Investors in preferred stocks usually get a fixed dividend, but no voting rights in the company. This has the potential to offer investors a steady income, although it’s important to choose the right stock to invest in. If you’re interested in finding a low-risk preferred stock investment, speak with a financial advisor to work out what path will be best to take.
- Fixed Annuities
A fixed annuity is a low-risk investment product offered by insurance companies. When you pay into an annuity, you are basically purchasing a contract from the insurer: you agree to let the insurance company hang onto your money for a fixed period of time, and they agree to make periodic payments back to you, with interest. When considering a fixed annuity, look closely at the interest rate and terms. Some rates may be the same for the life of the investment, while others may vary based on market conditions. Also remember that the annuity’s guarantee is only as strong as the issuing company.
- Index Funds
While index funds aren’t necessarily low risk, they are far less volatile than individual equities. So, if your risk appetite is a bit higher than bonds and CDs, index funds could be a good place to invest. An index fund tracks the performance of a market index, such as the S&P 500. In the most basic terms, your money moves in tandem with the overall market. Not being tied to just one company means a lower risk for your investment, particularly if you’re looking for a long-term strategy: because while nothing in the stock market is certain, indexes historically trend upwards.
Prior to investing, it’s important to have a good financial foundation, including having an emergency fund. HUECU members can speak with an expert financial counselor through the GreenPath Financial Wellness Program—a free benefit of Credit Union membership. GreenPath counselors can help you develop a budget, emergency funds and determine how much money to allocate towards investing.
1. Rates are subject to change.