What Are Low and No Risk Investments?
The goal when financially investing is to use potential assets to receive further profits. This concept compounds, meaning profits can be reinvested to create an exponentially growing profit loop. You can convert money into a cash-flowing asset after a transfer of location. Holding large amounts of money in cash or a checking account will result in 0 returns. In fact, you will likely lose value due to the 1%-3% average annual inflation rate. Transferring (aka investing) this money into something with potential returns is understandably a popular alternative. However, if you do not want to take large financial risks, there are still some low and no risk investments that are great options.
Why Should We Invest?
To avoid losing value, you can transfer money to a wide variety of investments with varying risks and rewards. Something to be aware of is the high correlation between risk and reward within the investing game. Further, the reality is that not every investment will be profitable. Investing money is an excellent tool for building wealth or establishing a healthy retirement fund. There are some reliable investment strategies with low and no risks that you can utilize.
What Are Some Low And No Risk Investments?
A savings account is a tool that everyone should have because of its lack of risk and easy accessibility. Most savings accounts (especially this year, 2020) offer meager interest rates. However, there are many upsides to holding money in this type of account. The amount of interest varies from bank to bank and can be anywhere from 0.05%-0.6%. These numbers can fluctuate annually depending on the Federal Reserve System. However, the investment can not lose value. The FDIC guarantees all creditable savings accounts. In addition, savings accounts are connected to checking accounts, allowing money to transfer between them easily. Although, be aware that a savings account normally has a maximum number of withdraws per month.
Certificate of Deposit (CD)
A certificate of deposit or CD is similar to the savings account with its FDIC insured no-risk approach. Certificates of deposits also typically have a slightly higher interest rate attached to them, averaging between 0.24%-.65%. Alternatively, the interest rate connected to the CD once purchased will not change until the maturity date. This will result in consistent monthly returns within the account. With this investment strategy, you must lock the money into the CD for a predetermined amount of time (6 months, 1 year, 5 years, etc.). In addition, your initial investment plus earnings will only be released back to you after the time expires.
These securities have no risks involved because they are backed by the full faith and credit of the U.S. Treasury Department. The 3 most common types of treasury securities bought are treasury bills (T-bills), treasury notes (T-notes), and treasury bonds (T-bonds). These treasury securities function identically with semi-annual interest returns, only differentiating based on maturity length. T-bills typically mature within a year, including 0.09%-0.17% interest. T-notes typically mature within 2-10 years, including 0.21%-0.95% interest. T-bonds typically mature greater than 10 years, including 0.95%-1.7% interest. Something notable is that, unlike CDs, you can sell these treasures before maturity.
Money Market Account
A money market account functions similarly to the traditional savings account. Only really differing in the amount of interest paid and minimum balance required. The interest paid is based on the current interest rates in the money markets. These tend to be higher than the interest associated with savings accounts within the bank. In addition, money market accounts also come with a larger minimum deposit and balance requirements with slightly better interest rates. In addition, there are, on average, only around 3 withdraws allowed per month from this account.
Money Market Fund
Investing in a money market fund is very different from a money market account. This type of fund invests in short-term debt instruments such as commercial papers or CDs, which can lose value, although unlikely. The average return from a money market fund is around 1%-3% annually which is comparatively high. Unlike the money market account, the money market fund is not FDIC insured. However, it still makes solid retunes while remaining incredibly safe.