Taking risks when investing can pay off. Opportunistic real estate investments, for example, offer high return potential for those willing to take a little more risk.
But investors don’t always have the luxury of taking risks. Sometimes we need to play it safe to protect our capital. But that doesn’t mean you can’t earn respectable returns.
In this list of the best low-risk investments, we’re exploring 15 options for those who want to limit risk. We’ll cover everything from 100% safe FDIC-insured high-yield savings accounts to low-risk real estate investments with high return potential.
Since investment goals and risk tolerance vary from one investor to the next, we are presenting these 15 best low-risk investments in no particular order:
- High-yield savings accounts
- Certificates of deposit (CDs)
- Government bond funds
- Municipal bond funds
- Corporate bond funds
- Treasury bills
- Cash management accounts
- Money market accounts
- Money market mutual funds
- Fixed annuities
- Index funds
- Buying a home
- REITs
- Long-term residential rentals
- Real estate syndication
1. High-Yield Savings Accounts
High-yield savings accounts offer higher interest rates than traditional savings accounts while functioning the same way. The higher interest rate is often a reward for retaining a larger minimum balance in the account than a traditional savings account would require.
High-yield savings accounts are FDIC-insured up to $250,000, so your capital is protected. You can open a high-yield savings account with an online bank.
Risk level: Extremely low
Reward potential: Very low
2. Certificates of Deposit (CDs)
CDs are timed deposit accounts with a fixed interest rate and maturity date. You commit your cash for a set period (ranging from a few months to several years) and then collect your capital plus the agreed-upon interest at the end of the period.
CDs are FDIC-insured and can be purchased directly from your bank.
Risk level: Extremely low
Reward potential: Very low
3. Government Bond Funds
Government bond funds are packages of debt securities issued by the US government. By investing in a fund rather than in individual government bonds, you automatically diversify your investment capital across multiple assets. And, because you’re investing in the government, your interest may be exempt from federal income taxes.
Because government bonds are backed by the US government, your capital is safe, but the yields are low. Government bond funds are available through online investment platforms.
Risk level: Very low
Reward potential: Low
4. Municipal Bond Funds
Municipal bond funds work the same way as government bond funds, but instead of investing in the federal government, municipal bond funds invest in local and state governments. The income generated is often exempt from federal income taxes, and possibly state and local taxes.
While yields are low, your capital is safe, and you may benefit more from the tax advantages than the yields. Municipal bond funds are available through online investment platforms.
Risk level: Very low
Reward potential: Low
5. Corporate Bond Funds
Corporate bond funds are packages of bonds issued by corporations. The yields vary depending on the credit rating of the companies.
The risk is higher than government bonds because corporations are subject to credit risk. This additional risk may be offset by the higher yields corporate bonds typically earn compared to government and municipal bonds. Corporate bond funds are available through online investment platforms.
Risk level: Low
Reward potential: Moderate
6. Treasury Bills (T-Bills)
Treasury bills are short-term government securities with maturities ranging from a few days to a year. They are sold at a discount to face value and then repaid at face value upon maturity.
T-bills are considered among the safest investments, backed by the US government. Because T-Bills are both hyper-safe and short-term, the yields are very low. T-Bills can be purchased through a broker or directly from the government at TreasuryDirect.gov.
Risk level: Extremely low
Reward potential: Very low
7. Cash Management Accounts
Cash management accounts combine the features of checking and investment accounts into one product. From the investor's perspective, it functions as a checking account, allowing you to access funds as needed. But behind the scenes, robo advisors (artificial intelligence finance bots) are investing the funds in high-liquidity, low-yield investments.
These accounts are FDIC-insured or protected by similar insurance. The reward is very low, similar to high-yield savings accounts, but with slightly better flexibility. Cash management accounts are available at financial institutions.
Risk level: Very low
Reward potential: Very low
8. Money Market Accounts
Money market accounts are interest-bearing accounts that function like savings accounts but with more restrictions (such as higher minimum balances) and higher interest rates.
These FDIC-insurance accounts can be opened at banks or credit unions.
Risk level: Very low
Reward potential: Very low
9. Money Market Mutual Funds
Money market mutual funds are bundles of short-term, high-quality debt from the government, banks, or corporations. They aim to maintain a stable share price.
Money market mutual funds are not FDIC-insured. However, since the funds invest in such safe vehicles, the risk is still low. As are the returns. Money market mutual funds are available through online investment platforms.
Risk level: Low
Reward potential: Very low
10. Fixed Annuities
Fixed annuities are insurance products that provide a guaranteed payout over a specified period. Payments can start immediately or at a future date.
The risk is very low as fixed annuities offer guaranteed income, depending on the insurer's stability. The yields are also low, reflecting the conservative nature of guaranteed returns. Fixed annuities can be purchased through an insurance provider.
Risk level: Very low
Reward potential: Low
11. Index Funds
Index funds are bundles of stocks that aim to replicate the performance of a specific index, like the S&P 500. The idea is that investing in a well-diversified index fund will provide returns that mirror the market's overall performance.
Diversification across many stocks mitigates risk. However, since index funds are exposed to the market, there is greater potential for better returns, depending on general market conditions. Index funds are available through online investment platforms.
Risk level: Low
Reward potential: Moderate
12. Buying a Home
Purchasing a home represents a greater commitment than the previous entries on this list of the best low-risk investments, but the return potential makes this investment well worth it. In addition to building equity and gaining appreciation, property ownership comes with tax benefits that other investments can’t match.
Real estate can be susceptible to short-term market fluctuations, but over the long term, real estate is a low-risk investment. The buying process is fairly complex, so it’s worth exploring homebuyer tips and discussing options with a licensed real estate agent.
Risk level: Very low
Reward potential: Moderate
13. REITs
Real Estate Investment Trusts (REITs) are companies that own and operate income-producing properties. Investors can buy shares in these trusts, much like stocks.
The risk is low because the investment is automatically diversified across the REIT’s different assets. As is often the case in real estate. The reward potential outweighs the risk because real estate offers both cash flows and appreciation. However, since REITs don’t offer investors an ownership stake in the underlying real estate, REIT investors cannot take advantage of traditional real estate investment tax benefits.
REIT shares can be purchased through an investment broker or online investment platform.
Risk level: Low
Reward potential: Moderate
14. Long-Term Residential Rentals
Purchasing a property and renting it out is one of the best ways to make money in residential real estate. Long-term rentals typically offer stable recurring income, appreciation, and tax benefits. The only potential downside is that rentals require ongoing maintenance and tenant management. You can handle this yourself or hire a property manager to handle it for you.
There is limited market risk on a long-term residential real estate holding as long as the property is properly vetted and tenants are properly screened. And with rental rates continually rising, potential returns increase over time.
Risk level: Low
Reward potential: High
15. Real Estate Syndication
Real estate syndication combines the best of direct property ownership with the best of REITs. Investors pool their funds to finance a real estate project. The project could be anything from a single-family fix-and-flip to a multi-family ground-up development. Each investor owns an equity stake in the property and is entitled to a share of the returns.
By spreading the capital requirement across multiple investors, risk exposure for individuals is reduced. Investors can reduce risk even further by investing in multiple syndication projects for increased diversification. Plus, syndication projects are handled by professional real estate sponsors. An experienced sponsor knows how to avoid pitfalls and maximize returns. The reward is high, especially since syndication allows investors to invest in unique projects that they might not have access to as individual investors.
Risk level: Low
Reward potential: High
Take Advantage of Low-Risk Real Estate Investments with Gatsby
Gatsby Investment is a real estate syndication company with an outstanding track record of successful projects. Since Gatsby’s inception in 2016, 100% of projects have turned a profit for investors, with the average annualized return being an impressive 23%!
Gatsby expertly manages each syndication project to minimize risk and maximize returns for investors.
Learn more about what makes Gatsby Investment unique to find out how we consistently provide strong returns on low-risk investments.