With low-risk investment options, you have to make a compromise. Investing in them will greatly minimize any financial risk but it will also lessen your rate of return. If you are retiring, or just a few years away from retiring, low-risk investments are usually a no-brainer.
Whether you’re near your retirement age or simply just looking for safer ways to invest your capital, here are some low-risk investment options you can look into:
Certificates of Deposit
Banks give out certificates of deposit that will grant you a specific interest rate over a period of time, typically six months and up to even five years. You will be penalized if you withdraw the money you deposited before your term ends. Certificates of Deposit are very low risk and are an ideal place to put your money in if you plan on making a purchase in the near future.
Bank Savings
Parking your cash in a savings account is very low risk however, you stand the chance of losing money if your savings account interest rate is significantly less than the rate of inflation. But savings accounts offer you the convenience of having access to your money any time you need it.
Stable Value Funds
Stable value funds are a low-risk investment option that aims at retaining your principal and provide liquidity so you can cash out anytime. Stable value funds are comparable to short and intermediate term bonds in terms of returns but with less fluctuations.
Fixed Annuities
Fixed annuities are issued by an insurance companies. This type of investment option is considered low risk because the insurance company contractually agreed to pay you a fixed interest rate. Fixed annuities are similar to certificates of deposit except, when you withdraw it prematurely you will incur a penalty tax.
Immediate Annuities
Immediate annuity gives you a specific amount of income by the month. Much like fixed annuities, immediate annuities are only as good as its issuing insurance company. You are exposed to risk if the insurance company goes bust.
Why Invest in Low-Risk Investments?
With low-risk investments, it isn’t reasonable to expect generating a considerable return. Investments that offer higher returns naturally involves a higher level of risk.
Low-risk investment options are ideal for retirees who just want to preserve their capital. Most investors diversify their investments, starting with a majority of their investments on the high-risk side when they are young and gradually moving most of those investments to safer options as their retirement draws near.
