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Low-Risk Investment Options for a Secure Future

Whether you’re nearing retirement or simply looking for ways to minimize your investment risk, there are several types of securities that can help you achieve your goals. While low-risk investments typically come with lower returns, they offer stability and security. Here are seven of the best investments for people with a low risk tolerance.

1. Certificates of Deposit (CDs)

A certificate of deposit (CD) is a time deposit bank account that offers a fixed interest rate for a period ranging from one month to several years. You’ll know your return from the start, and your annual percentage yield (APY) won’t change during the CD’s term. As of January 2024, some of the best CD rates are well above 5%.

However, you typically need to lock up your funds in the account until it matures. If you withdraw money too early, you could be penalized. Therefore, it’s best to avoid locking up money you may need access to before your desired CD term ends.

2. Treasury Securities

The U.S. Treasury offers a variety of bills, notes, and bonds, which are among the safest investment options because they’re backed by the full faith and credit of the U.S. government.

• Treasury bills: Short-term investments with a maturity of one year or less. Yields are around 5% as of January 2024.
• Treasury notes: Mid-term securities with maturities ranging from two to 10 years. Current rates are around 4%.
• Treasury bonds: Long-term securities with terms of 20 or 30 years. Yields are in the low 4% range.
• Treasury Inflation-Protected Securities (TIPS): These adjust with inflation, ensuring your investment keeps up with the cost of living.

3. Savings Bonds

The U.S. Treasury also offers savings bonds, including EE bonds and I bonds:

• EE bonds: Fixed interest rate of 2.7% through April 2024, guaranteed to double in value at the 20-year mark.
• I bonds: Combination of a fixed interest rate and an inflation rate, currently totaling 5.27% for bonds issued through April 2024.

4. Municipal Bonds

Municipal bonds, or munis, are issued by state, city, county, and other local government agencies. They come in two types:

• General obligation bonds: Backed by the full faith and credit of the issuing government agency, offering lower risk and returns.
• Revenue bonds: Backed by the revenue of specific projects, offering higher returns but also higher risk.

5. Corporate Bonds

Corporate bonds are issued by corporations to raise money. The risks and returns vary depending on the issuing company. Investment grade bonds, issued by corporations with strong credit ratings, offer lower risk and better returns than Treasury and municipal bonds.

6. Money Market Funds

Money market funds invest in short-term, highly liquid assets like cash and government securities. The risks and returns depend on how the fund is managed. Current seven-day yields range from roughly 2.5% to over 5%.

7. Preferred Stocks

Preferred stocks are a hybrid investment combining elements of both debt and equity. They are less risky than common stocks but riskier than bonds. Preferred stockholders get priority over common stockholders for dividends and asset distribution but typically don’t have voting rights.

The Bottom Line

Understanding your goals and risk tolerance can help you determine the best way to construct your investment portfolio. While low-risk investments offer stability, they won’t provide the same returns as high-risk investments like stocks and real estate.

If you need assistance in developing an investment strategy or managing your portfolio, consider consulting with a financial advisor. For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions for your future.

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