As part of our ongoing series on top ways to make money we bring you our picks for some of the best low risk investments currently in the marketplace. Because a great way to make money is to know how to invest money. And even a small investment can go a long way towards building your financial future.
Disclaimer: In no way should this be construed as investment advice specific to you. The info provided is general in nature. Do your own research and consult a professional.
We at TermLIfe2G are not financial experts nor do we claim to be. In fact, all we are is a bunch of life insurance agents who have a ton of experience helping folks qualify for life insurance.
That being said however…
Our experiences have lead us to have thousands of conversations with folks about their finances and insurance needs. This is why we like to share some of the things that we’ve learned in speaking with our clients that may help you:
- Earn a little extra money on the side,
- Save a little money here and there, and
- Potentially explore some “low risk” or perhaps “lower risk” investment ideas.
With the full understanding that we’re not financial experts, we would encourage you to keep reading and hopefully, we might be able to provide you with some great ideas you can present to your financial advisor for consideration!
Best Low-Risk Investments
When it comes to life, everyone in the world has a similar aim when you simplify it all down; to earn enough money to live comfortably. Sure, some may have aims to become millionaires as well as personal and career-based goals. However, the very basic instinct in human survival is to earn enough money to survive. Today, we have some top tips for the best low-risk investments to help you obtain this goal.
Before we head into the advice, we should note that ‘investment’ is a term that has been linked with the wealthy and there has been a general line of thinking that only the rich can invest. Why? Above all else, this probably comes from the link between stocks and investment. In today’s world, anyone can invest their hard-earned money. If you prefer not to risk it all on the performance of the stock market, you will need some low-risk ideas where you still have a chance at a good return and this is what we have for you today!
Cash Value Life Insurance
Did you know that there is a way to structure a cash value life insurance policy to generate early high cash value growth, while also providing an ever increasing death benefit for your family? What better option than a high cash value life insurance policy to offer a low risk high yield investment?
Consider how many times you have heard someone argue that you should “buy term and invest the rest.” When you hear the majority of financial entertainers saying the same thing it should compel an inquisitive person into investigating if this financial mantra is actually good advice, or if there are benefits to whole life insurance that should be considered.
The best whole life insurance policy can offer guaranteed returns of 4% over the life of the policy and even higher returns through life insurance dividends. It is not unheard of to get a return with dividends in you policy of over 6%, a serious low risk high return investment option.
Add to this the fact that those returns are not taxed and so your actual return is much higher when you compare it to a higher risk taxed investment, such as mutual funds.
Guaranteed returns, guaranteed fixed premiums and a guaranteed death benefit are what make cash value life insurance the best low risk investment available. Combine these guarantees with a strategy using life insurance for personal financing and you may be on the road to financial freedom.
Starting simple, this is one of the easiest and most secure suggestions we have today and this is because there is no way you can lose money, although you may not keep pace with inflation so your money may decrease in value as it is parked in a savings account.
If you already have a savings account that hasn’t been touched for some time, we recommend doing a little research because you might just find a different bank or company offering much better rates. Although the returns aren’t going to be anything to write home about, you aren’t going to lose anything and you can start to build a ‘rainy day’ fund for the future.
Finally, we also suggest a savings account for those who tend to keep cash lying around the house and this is for a couple of reasons.
First, cash is easily destroyed in an accident and it can be stolen.
Second, inflation may erode the value of the amount you have under your mattress; in fact, it may be worth less every single time you lift the mattress to check it’s still there.
With the small amount of interest you earn with a savings account, you may mitigate inflation and your money can maintain more of its value.
Peer-to-Peer (P2P) Lending
Of all the recommendations we have here today, this is perhaps one of the most exciting since it has exploded in popularity over the past few years. Rather than buying shares in a company and receiving a percentage of their profits in the future, P2P Lending allows you to give money to a startup or any other business on a short-term basis; in theory, they should return this amount as soon as possible with a premium on top.
If you have heard bad things about P2P Lending, this is likely to be because the person didn’t screen the loan opportunities as well as they could have. If you aren’t researching and screening all loas, this platform does become more risky than others. With proper due diligence, such as efficient screening and choosing the best loans available, you can secure a small return on all financing you offer.
Today, Lending Club is one of the most popular platforms and they currently have a default rate of 5% (one in every twenty). Therefore, 95% of the time you may see success but this is only if you screen the opportunities and be sensible with your money.
Nowadays, there are more tools than ever before so these could come in handy when making decisions. If you wanted to dip your toes in the water, you can start with as little as $25 so this is a great way to get started. With $200, you could build a portfolio of eight different projects.
Stocks with Dividends
At first, you might be put off with this one because you see the word ‘stocks’ but there are some companies that pay dividends to all stockholders. AT&T has consistently increased its dividend for over 30 years, with its last dividend yield currently at 5.1%.
Of course, this isn’t an entirely risk-free investment otherwise everyone in the world would want a slice of the action but you could see much less risk when compared to regular stocks. Why? For one reason, they are normally huge multi-national companies with a fantastic reputation.
During the positive years, you may see a great return on your investment and all is well. Even when the market falters somewhat, your dividend stocks may be less vulnerable than any other so you may still be in a good position; not great, but not as poor as those with regular stocks who are praying for a major change in the market. During what we call ‘bear’ markets, dividend stocks actually gain in popularity.
Earlier, we saw savings accounts which don’t necessarily qualify for the ‘investment’ title and savings bonds also fall into this category because they are seen as ‘savings instruments’. From the treasury, you can see two different types of savings bonds with ‘I bonds’ and ‘EE bonds’.
If you want to remain protected against inflation, the I bond is the one for you because you secure a fixed rate with the inflation revised only twice a year. With the EE bonds, they continue to pay interest for around 30 years and, as long as they were issued after May 2005, the rate of return remains fixed.
With both bonds, you may need to hold the amount for five years or else pay a penalty of three month’s worth of interest. Much like a savings account, the risk here is little or perhaps even non-existent and the return is very small but it could be an instrument to use to protect yourself against inflation.
Just like bonds, preferred stocks trade within a very small range, they are higher than equity in the capital stack, and they pay a good dividend. Furthermore, you may remain protected whenever a company needs to reduce dividends because it will typically be the common stock that sees a reduction before it then affects the preferred stocks. For these reasons, they have attracted much attention through the years and nothing looks to be changing this in the near future.
If we compare these to the dividend stocks we saw earlier, these actually provide less risk so they can be a great addition to your low-risk portfolio. If you have never heard the term before, preferred stocks are actually self-explanatory in that they generally have preference over the common stocks held elsewhere. As well as seeing the cuts to dividends after, they also have a higher claim on all earnings and assets of the company.
Throughout the good times, preferred stocks see the benefits before standard stockholders but they become perhaps even more important when times are rough. Why? When there is a threat of liquidation, general stockholders may fall in line behind all creditors, bondholders, and maybe even some more stakeholders. However, preferred stockholders may be before common stockholders regardless so they keep you protected.
Certificates of Deposit
Known as bank ‘CDs’, this option brings us back to the very small risk category because they are considered a deposit more than an investment; just as before, we want to include it here in the interest of providing you with options and so you have an opportunity to spread your portfolio.
When you have a CD, this is a promise from the bank to pay you a certain amount of interest over a set period of time. First, this interest is earned based on your initial deposit. Secondly, you may need to leave the CD exactly where it is until the term comes to an end or else face a penalty. With some savings accounts, you may receive a better interest rate but they often require a larger deposit to start which makes CDs available to a much wider audience.
If we were to assess the downsides of choosing bank CDs, the first would probably be that you cannot touch the money for however long has been agreed. Essentially, this money could be tied up for a number of months or years but this could also be seen as a good thing because you cannot dip into it for impulse purchases. If you were to remove your CD before the period is up, you are likely to lose some of the built interest so this may normally render the whole exercise pointless. If you’re setting up a CD, you should leave it where it is until the term is over.
Similar to stocks, there seems to be some resistance with those interested in the best low-risk investments for annuities and this is often due to the high fees that some create. Despite people overselling them a little, they can still be a good addition to your portfolio because they offer a higher return than many options we have here today. However, you do need to be careful so we always recommend working with a trusted financial advisor.
Although annuities are a little tough to explain because there are so many moving parts, they are essentially based around a contract listing various provisions. Using an insurance company, you turn the principal over to them and they in turn suggest a guaranteed return rate which can be variable or fixed. Generally speaking, the higher risk annuities come from the ones with a higher promised return as they are likely to be highly dependent on stock market performance.
In terms of security, annuities aren’t FDIC-insured but they do have the backing of the issuing insurance company as well as another insurance company who is also named on the contract. If you’re willing to talk to a financial advisor and listen to their suggestions, you can make reasonable returns on your investment with annuities.
Credit Card Rewards
At first, this seems like a rather outlandish suggestion but let’s break it down because there are now many people using this technique. To start, you should get a cash-back credit card because you earn points (once built up, they can be converted to real money). If you take a look at the various rewards on offer from some of the well-known cards, you may notice that your opportunity to earn is actually higher than many savings accounts and CDs.
If we use the Chase Sapphire Preferred card as an example, you could put all of your regular spending on it in order to earn the signup bonus at the very start. As long as you spend $4,000 within the first three months, you could qualify for 50,000 points which is equal to $500 and you can request this as cash back or in gift cards. Considering you would be spending this money on groceries, bills, daycare, and more anyway, you are essentially earning yourself $500 out of absolutely nowhere.
With other cards, the amount you have to spend may be lower if you are worried about the $4,000 target. If you spend less than this over a 90-day period, there is no reason why you can’t choose a different card for slightly smaller rewards. In truth, it doesn’t really matter what card you choose; we are just trying to make the point that you can earn money or gift cards for paying bills and making purchases you would be making regardless!
Short for Real Estate Investment Trusts, these are actually quite similar to mutual funds but in the world of real estate. Typically, your funds may be invested into commercial real estate such as large apartment complexes, office buildings, shopping centers, etc.
Overall, there are two different types of REITs; mortgage and equity. With equity REITs, this is a direct investment from you to the fund whereas a mortgage REIT is where you have a mortgage on the property and it comes as an added bonus. In some circumstances, you might also find a ‘hybrid REIT’ which is a combination of the two.
Just as with any other investment opportunity, you could have a chance to build a portfolio and this comes from investing in different real estate developments. Not only can you diversify in this way, you can also spread your money over different regions since the real estate market can be performing differently from one location to the next.
With some REITs, they can offer a divided yield of around 10% which makes them more successful than savings accounts and various other tips we have provided here today. Furthermore, they remain separated from the performance of stocks which is an added bonus. Before we move on, we should mention that you can invest in REITs through Exchange-Traded Funds (ETFs) so this is another option adding flexibility.
With this suggestion, we aren’t just talking about a standard ETF but instead one that actually mirrors the US Aggregate Bond Index of Barclays. With the Barclays index, we have numerous investment-grade bonds all from the US. With the funds that mirror this index, they have produced a good return in the majority of the years they have been in action; in fact, they have only failed three years from 36.
Within this index, you could find mortgage-backed bonds, Treasury bonds, agency bonds, corporate bonds, and even some foreign bonds held in the US. As you can see, this is deeply diversified but your funds may also go into bonds of different maturity and duration. In terms of a percentage, current yields seem to be around 2.6%. However, you have to consider the security of your funds; as we saw earlier, the index has made money in 33 of its 36 years. Even in its worst year, it only reached -2.9%.
Money Market Funds
Earlier, we saw CDs which cannot be touched unless you leave early (this leads to a penalty and a loss of money). Therefore, now we have a liquid option with money market funds. Typically, they may consist of a variety of different items including short-term bonds, CDs, and numerous other low-risk investment opportunities. When first setting up this fund, the bank should tell you what rate you can expect to see and what return you should expect as a result.
All things considered, these are relatively safe since they are made up of low-risk opportunities. Therefore, you get the best of both worlds because your risk remains low but your money is spread nicely between different opportunities. According to most banks, the aim for money market funds is to never drop below $1 per share.
Standing for Treasury Inflation Protected Securities (TIPS), these are one of the lowest risk investments you find from the US Treasury. If you choose this route, you can see two different types of growth with the first being a fixed interest rate that remains the same for the duration of the bond. For the second type, the government guarantees a built-in inflation protection; ultimately, this means that the value of your investment may rise with the guaranteed inflation rate straight from the government.
If we were to use an example, an opening interest rate might be 0.40% which is less than that of a CD and most savings accounts. However, you also have to remember that you earn with inflation. Even if inflation remains at 2%, this is on top of the original interest rate and both growth factors come together. As you have seen from this list, investing is actually rather flexible and TIPS follow suit with the option to buy individually or as a group of TIPS in one.
Lose the Credit Card
If you currently have a balance outstanding on a credit card, grab the last statement and look at the interest you are paying. In all likelihood, you are paying double-digit interest so using any investment money you have to clear this debt could be a far more effective strategy than any we can provide you with today.
Every month, you’re paying significant amounts just for the privilege of being in debt. Once you clear your balance, you can start to put this money towards something more useful; now you can see why so many people say you should always clear debts before you start to invest. By investing too early, you hinder your financial future because you may just keep paying credit card interest month after month, cancelling out any investment gains.
In addition to this, there is no risk with this investment because the money is going towards clearing your debt. As soon as the balance is cleared, you can start to take advantage of the credit card rewards we addressed a little earlier!
There we have it, your list of the best low-risk investments. As long as you follow these tips here today and create a diverse portfolio, there’s no reason why you can’t slowly increase your initial investment. If you need any help or advice, remember to contact a financial advisor as they can assess your unique circumstances and provide the right solutions for you!