Key Takeaways

  • Low-risk investments can be a good choice during times of economic uncertainty. While their returns may be smaller, they’re often safer than more volatile investment options.
  • Common low-risk investments include preferred stocks, high-yield savings accounts, certificates of deposit and Series I bonds.
  • You should consider your investment goals and risk tolerance before choosing a low-risk investment. They may not align with your intention for your investment portfolio if you’re seeking large returns.

From high inflation periods to recessions, you may be hesitant to invest your hard-earned money. Fortunately, there are safer ways to grow (and keep) your investments during downward trends.

With low-risk investments, you’re still likely to experience returns while minimizing potential losses, which can help you navigate periods of uncertainty. They’re also less stressful to manage if you prefer a hands-off approach.

Of course, less-risky assets will most likely generate smaller returns long term. These may work if you have a low-risk tolerance, but if they don’t align with your financial goals they might not be the best choice. Here are a few of the best low-risk investments and what you need to know before committing.

What To Consider Before Investing

Exploring safe investments can come in handy during a volatile market. However, understand that low risks mean earning lower returns. Here are a few things to think about before choosing a low-risk investment that works for you:

Considerations Before Low-Risk Investing

If you’re investing with retirement in mind, it’s a good idea to diversify your portfolio with low-risk assets. These can help protect your funds in an economic downturn, which may happen before you exit the workforce.

Regardless of your risk tolerance, low-risk investments are a good place for your cash needs. This applies not just to emergency savings but also liquid funds that you’ll need in a short period. Fortunately, high interest rates have provided good opportunities for low-risk investments while lowering your opportunity costs of investing in an alternative instrument.

Best Low-Risk Investments

Once you’ve checked your personal goals and factors off the list, the next step is to explore those safe investment options and how they differ. Below are the best low-risk investments to look into this year:

  • Money Market Funds
  • Fixed Annuities
  • Preferred Stocks
  • Treasury Notes, Bills, Bonds and TIPS
  • Corporate Bonds
  • Dividend-Paying Stocks
  • High-Yield Savings Accounts
  • Certificates of Deposit
  • Cash Management Accounts
  • Index Funds

1. Money Market Funds

A money market fund is a type of mutual fund that typically has low risks. They work by investing in high-quality, short-term corporate or government debt and paying those shareholders based on the interest. There are several types based on the securities they choose to invest in.

Money market funds let you invest in a pool of short-term securities, typically those that provide higher returns than traditional bank account interest rates. Generally, you can purchase money market funds through brokerage firms and mutual fund companies, but some online bank accounts offer them too.

Since their durations are short, they’re less prone to market fluctuations. Another perk is their liquidity, which allows you to take them out at any time without penalty. They’re inexpensive, and the funds you earn are usually available the next business day.


  • Flexible to take out any time without penalization
  • Inexpensive to purchase
  • Diversification by holding a variety of securities


  • Not FDIC-insured as investment accounts
  • Doesn’t keep pace with inflation
  • No guarantee on earnings
Money market funds vs accounts

2. Fixed Annuities

fixed annuity is a long-term contract between you and an insurance provider. It guarantees that you, the buyer, will have a fixed rate of return on your contributions for a specified period of time.

With fixed annuities, you pay the insurance company for a steady stream of income and in exchange they guarantee your principal. However, they’re not federally insured. You’ll have a guaranteed, set interest rate specified in your contract, resulting in steady growth.

Depending on the contract, a fixed annuity can be immediate or deferred. You can choose to receive payments within a year of purchasing it or have the payments start at a later time. Investors who typically deferred their annuities will start receiving payments during retirement.

If you’re looking for a safe place to preserve your principal but still grow your money faster than the average savings account, fixed annuities are a good bet.


  • Simple and straightforward type of annuity
  • Least risky, most predictable stream of income
  • Typically low fees
  • Guaranteed minimum interest rate
  • Lifetime income
  • Premium protection


  • Not guaranteed by the FDIC (but regulated and guaranteed by state insurance commissions)
  • Contract-dependant
  • No inflation protection, where actual value may decline over time
  • Early withdrawal penalties

Will You Be Able To Maintain Your Retirement Lifestyle?

Learn how annuities can:

  • Help protect your savings from market volatility
  • Guarantee income for life
  • Safeguard your family
  • Help you plan for long-term care

Speak with a licensed agent about top providers and how much you need to invest.

3. Preferred Stocks

Another low-risk asset favored by investors is preferred stock. These are hybrid securities, which have characteristics of both common stocks and bonds. Preferred stocks, which currently yield 6% to 9%, offer higher income than conventional stocks but exhibit less volatility.

With this type of stock, preferred shareholders can claim dividend payments before common shareholders — often at a higher dividend yield. They also have priority to claim assets in case of bankruptcy or liquidation.

However, a preferred shareholder’s priority doesn’t come without exceptions. While they may have greater return potential, there is also a larger risk of loss.


  • High yields
  • Liquidity
  • Price transparency
  • Less risky than common dividend stocks


  • Dividends aren’t guaranteed
  • Preferred stockholders have no voting rights
  • Cannot claim residual profits

4. Treasury Notes, Bills, Bonds and TIPS

With government backing and no credit risk, U.S. Treasury instruments or “treasuries” are recognized as the safest possible bond investments. When you invest in one, you’re essentially lending to the U.S. government for a predetermined time period.

Different types of U.S. Treasury instruments are available in different forms based on their maturities:

Types of US Treasury Bonds


  • State and local tax advantages
  • Liquid to buy and sell with ease
  • No credit risk


  • Interest rate risk
  • May not keep pace with inflation

Read More: Treasury Inflation-Protected Securities (TIPS)

5. Corporate Bonds

In simple terms, corporate bonds are debt obligations that companies issue to raise money. In return, these companies agree to pay you both interest and the face value of the bond once it matures. Corporate bonds are a considerable low-risk investment if you’re looking to earn money while protecting your capital.

The additional interest, or yield premium, depends on the creditworthiness of the bond issue. In this case, riskier, non-investment grade issuers pay much higher yields than safer investment grade issuers.

With an inherent level of credit risk, corporate bonds generally pay higher interest rates than U.S. Treasury, government agencies and municipal issues.


  • Stable income investment
  • High yields


  • Lower, long-term returns
  • Inflation risk
  • May require a minimum purchase

6. Dividend-Paying Stocks

For a reliable source of passive income, dividend-paying stocks are an attractive asset. These types of stocks are equity securities that generally distribute earnings regularly. In addition to providing passing income, they have growth potential.

Dividend-paying stocks focus on income rather than price appreciation, resembling bonds in this aspect. Remember that not all dividend stocks are good investments, so consulting with a financial advisor can be advantageous.


  • Less volatile than growth stocks
  • Passive income stream


  • Returns aren’t guaranteed
  • May experience dividend policy changes
Not All Stock Pay Dividends

7. High-Yield Savings Accounts

Similar to a traditional savings account, a high-yield savings account is where you can safely store and earn interest on your money. The difference is the rate, in which high-yield savings accounts offer about 20 times higher than a normal one.

Most high-yield savings accounts pay 1%–5% APY and are only available at online banking institutions. Also, like regular savings accounts, high-yield accounts have a limited number of monthly transactions.

Since high-yield savings accounts will increase your principal faster than regular ones, they can help with long-term financial goals. For example, you may use them to grow your savings for a down payment or an emergency fund in case of hardship within the next five years.


  • Higher earned interest than general savings accounts
  • Fund transfer process is easy
  • Liquidity


  • Limits monthly transactions
  • May require a minimum initial deposit for best rates
  • APYs can change month-to-month due to market conditions

8. Certificates of Deposit (CDs)

certificate of deposit (CD) is a savings account banks and credit unions offer to their customers. CDs provide interest compensation in exchange for leaving the amount in a bank account for a predetermined time.

Generally, CDs span anywhere between one month and five years, offering a relatively high interest rate compared to traditional savings vehicles. They can reflect fixed-rate or variable-rate terms, but fixed arrangements are, by far, the most prevalent.

While deposit requirements vary, they can be as low as a few hundred dollars. Like most investments, the more you deposit, the more you earn in interest. As for drawbacks, CDs have a lockup period, a time during which you can’t access or trade your money.

Nevertheless, they’re still popular with investors looking for high-quality, interest-bearing assets who can go without access to their money for a period.


  • Zero credit risk below insured limits
  • Stable investment product
  • May offer more competitive rates than other short-term options


  • May have an early withdrawal penalty
  • Inflation risk

9. Cash Management Accounts

In essence, cash management accounts or “CMAs” are online cash accounts where you can store your money, an alternative to traditional bank accounts. CMA providers of these types of accounts are generally nonbank financial institutions, such as investment firms and broker-dealers.

Many CMAs share similar features as bank accounts, such as offering debit cards and ATM access but charge little to no service fees. with higher interest. They also give you the flexibility to invest and manage your funds in one place.

Depending on your CMA provider, they may partner with banks that can extend FDIC protection to your account.


  • High-yield interest accounts
  • Combined banking and investment services
  • Low to no service fees
  • Easy setup and management
  • FDIC or SIPC coverage


  • Possible monthly maintenance fees
  • No in-person customer service

10. Index Funds

Last but not least are index funds. These are types of mutual funds that track the performance returns of a stock index, like the S&P 500. Buying one is essentially purchasing a share of the future profits of all major corporations within the index.

Index funds allow you to maximize returns passively over a long period, rather than actively buying and selling. You can trade index funds at the end of each trading day.

Since index funds are diverse and affordable, they’re more appealing to low-risk tolerant investors who desire growth opportunities. They also don’t require you to make further investment decisions, so they are a good investments for beginners.


  • Low cost
  • Hands-off management
  • Diversification
  • Reputable track record


  • Heavily relies on the market
  • Performance generally remains average

Closing: While no investment is entirely free of risk, the best low-risk investment will be the one that brings you the most peace. A financial planner can help you choose a low-risk investment that meets your comfort levels and aligns with your long-term goals.

Low Risk Investment Tips
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Please seek the advice of a qualified professional before making financial decisions.
Last Modified: January 9, 2024