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It is common knowledge that savings and investments are efficient ways to grow wealth and improve your personal finance. Sadly, every investment comes with a measure of risk; which varies for different investments. Most times, we are not prepared to take the risk involved especially with a high yield investment. Hence, the attraction to safer low-risk investments.
In conjunction with the research team, our financial experts have put together 8 investment options that are regarded as ‘very safe’; when compared to other investment products like dividend stocks, mutual funds, municipal bonds, etc. This article will explore these investment products in detail. Then, we will introduce the best forex trading course recommended for every investor or financial advisor.
8 Best Safe Investments in 2024
#1. High-Yield Savings Accounts
Every bank offers a savings account where you can deposit money and earn some interest especially if you do not withdraw frequently from the account. Usually, withdrawals are limited to a few times per month and you will be penalized if you exceed the limits. Interest rates are usually low; the annual percentage yield (APY) is about 0.06%.
High yield savings accounts are a special type of money market account that pay high-interest rates; typically 20 to 25 times more than traditional savings accounts. They are offered mainly by online banks; it is also available with conventional banks. Make sure that the account is insured by the Federal deposit insurance corporation (FDIC) which acts like an insurance company that protects your deposits of up to $250,000 if the bank collapses.
If you are considering a high yield savings account, bear in mind that most of them have a high minimum deposit and maintenance balance. To completely maximize the full account features, ensure that you meet all requirements. For example, Varo bank offers 0.5 – 5% on its savings account. To meet the 5% APY interest rate payment, you must maintain a daily savings balance of $5,000 and receive at least $1,000 in direct monthly deposits.
Generally, money market accounts are best for short-term goals such as saving for a car, vacation, etc. for a few years. But, for long time projects like retirement plans; there are other investment products that yield better returns.
#2. Certificates of Deposit (CDs)
These are special types of savings accounts where you invest a sum of money for an agreed term or period of time. Certificates of deposit are also referred to as time deposit accounts or fixed deposit accounts. Here, your deposited funds (principal) are locked up, denying you access for the full term. But, you can request a withdrawal before maturity but this will negatively affect your interest.
Certificates of Deposit are best for money that you will not be needing soon; probably for a year or more. Interests are generally higher on longer terms. Early withdrawal attracts penalties that may adversely affect your returns. If you want more flexibility or need to put away some savings as an emergency fund, then CDs are not for you.
As with all banking deposits, your funds are insured by the FDIC; making CDs qualify as a safe investment. The interest rates are set like other bank rates. Depending on the banks and your settings, you will receive regular updates about your CDs and the interest income accrued.
#3. Gold
Gold is a naturally occurring metal that has been regarded as a precious metal by man since ancient times. It is a valuable metal that is widely used in jewelry, dentistry, aerospace, electricity, etc.
Investors gain exposure to gold through the following methods:
- Buying and keeping the physical gold bullion: It is available as minted coins or gold bars. The metal is beautiful to behold and durable. It cannot be destroyed by fire, water, or age and so can be passed to your children. Gold bullion can be easily sold anywhere in the world. It is a good way to store wealth but, unfortunately, it can be stolen.
- Gold stocks: This includes the stocks of companies that are into gold mining, streaming, refining, and marketing. The investor may buy and hold in order to enjoy dividend payments or to sell later at higher share prices.
- Gold ETFs: These are exchange-traded funds that track the price of gold. It is traded just like stocks on exchanges.
Generally, gold investments are regarded as safe investments. Though its price is subject to short-term market fluctuations, over the years, Gold has served as a good hedge against inflation by maintaining its high value. Even central banks hold gold reserves; perhaps to diversify their foreign reserves or to hedge against inflation.
#4. US Treasury Bonds (T-bond)
Treasury bonds are long-term debt securities issued by the treasury department of the United States government. It is similar to taking a loan from the public or investors to run its operations. Treasury bonds are also referred to as ‘long bond’ because it matures in 20 or 30 years, unlike treasury bills which are short-term. T-bond investors receive interest payments every 6 months with the principal being paid at full term.
You can buy treasury bonds directly from the United States treasury. The auctions are held 4 times per year on the TreasuryDirect website. The minimum bid is $100 but you can invest up to $5 million. Only newly issued bonds can be bought from the site.
You cannot cash out your T-bond before maturity but you can sell it in the secondary market; a marketplace for buying and selling bonds. In the secondary bond market, you can sell or buy old bonds at the market value; which is the agreed price between the trading parties. You can also trade T-bonds through websites or firms that offer advisory or brokerage services.
US government bonds are considered risk-free investments because the government has not yet failed once in repayment since its inception in 1963. Federal income tax is paid on T-bonds but it is exempted from state and local taxes. Taxes are only paid on the interests received.
#5. Series I Savings Bonds (I bonds)
This is a type of low-risk savings bond issued by the US government. It pays up to 9.62% interest which is tied to inflation. The bond term ranges from 20 to 30 years. The earning rate comprises a fixed rate and an inflation rate which changes twice a year. The fixed interest rate is constant throughout the bond term but the inflation rate is dependent on the rate of change of the consumer price index over the previous 6-month period.
Series I savings electronic bonds can be bought on the TreasuryDirect website. Prices start from $25 up to $10,000 for each person per year. It is also available in paper form; prices start from $50 up to $5,000 per year for an individual. An investor can hold Series I bond funds totaling $15,000 in both paper and electronic form in a year. Earnings are free from taxes imposed by state and local governments but subject to federal tax.
Though similar to Treasury Inflation-Protected Securities (TIPS), I bonds differ in the following ways:
- It is always available in electronic form while the paper form is purchased only through tax refunds. TIPs is auctioned at TreasuryDirect; bids range from $100 to $5 million.
- Not marketable unlike TIPs which are traded in the secondary securities market.
- TIPs mature in 5, 10, or 30 years while Series I savings bonds mature in either 20 or 30 years.
I bond is regarded as a safe investment because it is backed by the federal government, and has a high-interest rate that rises with inflation thereby ensuring that investors do not lose purchasing power. You can redeem your I bond one year after the issue date but any cash out before 5 years from the issue date loses the last 3-months interest. There are no penalties if the bond is redeemed after 5 years.
#6. Corporate Bonds
These are debt securities issued by companies to investors in order to raise funds. It is tantamount to lending money to the company in exchange for multiple pre-agreed interests until maturity when the principal is refunded in full. Like all fixed income securities, interests or coupons are paid periodically until the full term. Some bonds are callable; allowing investors to cash out before maturity.
Though corporate bonds issued by the top and stable companies are regarded as safe investments, they are generally regarded as riskier when compared to bonds issued by the US government. Also, interests offered by government bonds are lower. The ability of the company to pay back its debt largely depends on its revenue and prosperity.
When newly issued, most corporate bonds can be bought in blocks of $1,000 through trustees such as banks or investment companies. This represents the primary market where investors buy at the offering price. Only the big investor can access this market.
Later, these bonds become available for reselling in the secondary over-the-counter market. Here the smaller investors can buy through a broker, bond dealers, or online brokerages. Before buying a corporate bond, check the credit ratings of the company. The major credit rating agencies use ratings to grade companies and institutions according to their credit quality.
For example; Standard & Poor’s (S&P) is a firm that provides data and issues credit ratings. It is particularly known for its popular S&P 500 index. The company uses the following grades to rate companies:
- AAA: This is the highest credit rating signifying that the company is financially stable and creditworthy. Companies in this category are very strong and less likely to default on bond repayments. Example: Microsoft Corporation is rated AAA.
- AA: This is the second-best rating representing an investment-grade company that is capable of paying its debts.
- A: This category represents institutions that can pay their debts but are likely to be affected by changes and economic conditions.
- Other ratings include BBB, BB, B, CCC, CC, C, and D: Reliability and stability are in decreasing order with a rating of D representing payment default or bankruptcy filed.
Instead of buying individual bonds, some investors prefer to buy funds that pool investors’ funds together and are managed by professionals. Bond funds are mutual funds whose portfolios comprise various bonds. Below are some important bond funds:
- Corporate bond funds: made up of a portfolio of mainly high-yield bonds issued by companies.
- Government bond funds: consists of various government bonds.
- Municipal bond funds: made up of bonds issued by states, cities, government agencies, etc
#7. Real Estate
This refers to investments in land and buildings. Apart from generating steady income, real estate investment is generally known for capital appreciation over time; especially if it is located in a city. However, real investments usually require huge capital and also have maintenance fees and property taxes. But, it is relatively considered a safe investment depending on the immediate and local environment.
Real estate investment trusts (REITs) are investment funds that invest in real estate to generate income primarily through rentals or other services. Similar to a mutual fund, the company or REITs pool funds from investors and buy or build real properties such as offices, hospitals, housing estates, shopping malls, hotels, etc. REITs are mostly public limited companies whose stocks are traded in the stock market.
Real estate investment trusts offer small investors opportunities to invest and earn high returns on their investments. They pay regular dividends and are managed by a board of Directors. Real estate investments are not really safe as it depends on a lot of factors such as management team, local environment, government policy, market volatility, etc.
#8. Preferred Stocks
Common stocks are tradable securities that give the owner a fraction of the ownership of a quoted company. Preferred stocks or preference shares are special stocks that give the holder equity shares, rights over dividends, and company assets distribution in event of company liquidation.
Preference stocks are superior to common stocks because they combine the features of both bonds and common stocks. However, when compared to bonds, they carry only slightly more risk because bonds are prioritized during asset liquidation.
For dividend-paying stocks, preference stocks receive higher payments and are given preference in terms of dividend payments. Common stocks may not always receive dividends. So, preference stocks are more like fixed-income investments that pay dividends. Common stocks grow in value as the company makes profits but preference stocks do not necessarily grow with profits but can be adjusted.
Just like common stocks, preference shares are traded in the stock market. It can be bought through stockbrokers both online and offline. You may also invest in an index fund that tracks the stock market performance of several preference stocks.
Institutions usually buy preference stocks because it offers some tax advantages. Some preferred shares are callable; meaning that the company can redeem the shares at a stated price and date. This gives it the exact features of a bond, so they are called hybrid securities in some cases.
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Conclusion: Best Safe Investments in 2024
What is your risk tolerance? How much losses are you willing to bear? Many investors do not wish to lose their money in the quest for growing it. So, securities with low-risk exposure are in high demand.
High-yield savings accounts offer high-interest rates than regular savings accounts. When opening one, do a little research and find out the minimum deposit, interests, charges, account limitations, and if your funds are protected by FDIC. Compare account conditions from multiple sources before making a choice. Most low-risk investments require large capital and long term before earning significant returns.
Certificates of the deposit are best for funds that you do not need in the next 1-10 years. If you apply for it, your bank locks the cash and you will not be able to access it until the full term is completed. If you decide to cash out, you will lose some interest. The interest rate is higher than a normal savings account.
Investing in gold is safe, low risk, and serves as a good hedge against inflation. You may buy the gold bullion, or invest in gold stocks or ETFs. T-bonds are issued by the US government for a term of 20 or 30 years. You will receive payments every six months but the principal is paid at full term. If you need money anytime before expiry, then, you will have to sell the T-bond in the secondary market.
I bonds cannot be traded; they are long-term savings securities with high-interest yields. It adjusts for inflation semi-annually with a minimum term of 20 years and a max of 30 years. The interests accrue monthly but are compounded every six months. The principal and interests are paid at maturity but you can cash out after one year.
Corporate bonds are issued by companies to raise funds for business or expansion. Ensure that you buy only bonds from companies with high credit ratings. Alternatively, you can buy bond funds which are like mutual funds comprising a pool of bonds sourced from multiple bonds and managed by professionals.
Though capital intensive, real estate is a safe investment that is capable of yielding good returns. This is especially if it is located in an urban and peaceful area. Preferred stocks are less risky than common shares but riskier than bonds. It pays regular dividends and may be traded on exchanges just like other stocks. You can also invest in index funds which are like mutual funds that are limited to only preferential stocks.
Best Safe Investments in 2024 FAQs
What is the safest investment with the highest return?
They are as follows:
- Series I savings bond
- High yield savings accounts.
- T-bonds
What is the safest thing to invest in right now?
There are no absolute safe investments, however, there are some investments that have a good history of past performance and are relatively safe. Some of them are:
- Bonds issued by the US government such as T-bonds, and I bonds.
- Stock investments such as buying preference shares.
- Investing in real estate
- Investing in gold