Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
If you’re looking to invest some of your money but are concerned about potential losses, a low-risk investment might be a good option. These types of investments are ideal for conservative investors seeking modest to moderate returns while prioritizing the safety of their capital.
While you won’t earn the sky-high returns possible with riskier investments, you’ll be able to diversify your portfolio. That can aid you in saving for future purchases and even earn some returns without worrying about losing lots of money.
1. U.S. Treasury Bills, Notes and Bonds
- Risk level: Very low
- Potential returns: Low to moderate, depending on maturity
U.S. Treasury securities are backed by the full faith and credit of the U.S. government. The market for U.S. Treasurys is one the largest liquid government bond markets in the world, making them easy to sell if you need access to your cash before the maturity date.
There is a wide variety of maturities available. Treasury bills, also referred to as T-bills, have maturities of four, six, eight, 13, 17, 26 and 52 weeks. They are sold at a discount to their face value, and your return is the difference between the purchase price and the value at redemption.
Treasury notes come in maturities of two, three, five, seven and 10 years, while Treasury bonds have long maturities of 20 to 30 years. This means that Treasury bonds carry slightly more risk than shorter-duration Treasury securities. Both bonds and notes make interest payments every six months.
2. Series I Savings Bonds
- Risk level: Very low
- Potential returns: Depends on the rate of inflation
I bonds are a special type of U.S. savings bond with a variable interest rate designed to keep up with inflation.
These bonds offer returns based on two interest rates: A fixed rate that remains the same for the 30-year term of the bond, plus a variable interest rate that is updated every six months to match the prevailing rate of inflation.
In addition, I bonds benefit from semiannual compounding: Earned interest is added to the value of the bond twice a year, gradually increasing the principal on which you earn interest. The catch: You must hold the bond for at least a year before cashing out. Plus, there is also a small penalty if you cash out before five years have passed.
3. Treasury Inflation-Protected Securities (TIPS)
- Risk level: Very low
- Potential returns: Depends on the rate of inflation
Treasury inflation-protected securities, or TIPS, are issued by the U.S. Treasury, and like I bonds they use a special mechanism to ensure that returns keep up with the rate of inflation. TIPS offer maturities of five, 10 or 30 years.
Most bonds promise to return your original investment plus a fixed or variable amount of interest. TIPS offer a fixed rate of interest, but their principal value increases or decreases in line with the prevailing rate of inflation.
At maturity, if the principal is higher than your original investment, you keep the increased amount. If the principal is equal to or lower than your principal investment, you get the original amount back. TIPS pay interest every six months, based on the adjusted principal.
4. Fixed Annuities
- Risk level: Very low
- Potential returns: Modest
Fixed annuities are a popular type of annuity contract that is frequently used for retirement planning. But these investment vehicles can also be useful for medium-term financial goals. Sold by insurance companies and financial services companies, a fixed annuity guarantees a fixed rate of return over a set period, regardless of market conditions.
There are two stages in the life of an annuity: the accumulation phase and the payout phase. In the first phase, you make a series of payments into your annuity and earn interest that grows the value of your account, tax-deferred. The payout phase may be either a single, lump-sum payment or a series of regular payments over time.
Although inflation can erode the value of a fixed annuity, many companies offer cost-of-living-adjustment riders that help the value of your annuity keep up with rising prices.
5. High-Yield Savings Accounts
High-yield savings accounts offer an unbeatable combination of a modest return on your money, easy access to your funds, and the backing of the Federal Deposit Insurance Corp., which insures deposits up to $250,000.
With minimal risk of losing money, a high-yield savings account offers a safe place to store your emergency fund or cash for upcoming expenses. Depending on current interest rates, you may also earn modest returns.
The interest rates offered by high-yield savings accounts can vary widely depending on market conditions. But, you’ll never lose money on your principal or earned interest.
6. Certificates of Deposit
- Risk level: Very low
- Potential returns: The best CDs may offer returns that match or beat high-yield savings accounts.
CDs are time deposit accounts that allow you to invest your money at a set rate for a fixed period, ranging from just weeks to 10 or more years. Withdrawing the money before your maturity date will trigger an early withdrawal penalty fee.
There are different types of CDs. Here are a few examples: regular, bump-up, step-up, high-yield, jumbo, no-penalty and IRA CDs. Different financial institutions will have different rules and fees.
CDs are insured by the FDIC up to statutory limits, which makes them a very low-risk investment option.
7. Money Market Mutual Funds
- Risk level: Low
- Potential returns: Modest
Money market mutual funds invest in various fixed-income securities with short maturities and very low credit risks. They tend to pay a modest amount of interest. Unlike other kinds of mutual funds, there’s very little chance of making money from appreciation.
This type of investment offers plenty of liquidity, and because of the types of investments they make, they are considered to be very safe with very little risk of losing money. Money market mutual funds are best used as a parking place for cash that you might want to keep easily accessible for a big purchase or another investment opportunity.
8. Investment-Grade Corporate Bonds
- Risk level: Moderate
- Potential returns: Modest to high
Corporate bonds are fixed-income investments issued by publicly traded companies. If the issuing company has a strong credit rating, the bonds are considered investment grade—or high grade—indicating a high likelihood that the company will consistently pay interest and repay the principal when the bond matures.
Credit rating agencies like Moody’s, Standard & Poor’s, and Fitch Ratings assign credit ratings to companies after conducting in-depth research on their finances and stability. But just because a bond is considered investment grade today is no guarantee that a company won’t get into trouble tomorrow and see its credit rating downgraded. That’s why this type of investment carries more risk than the others listed above.
9. Preferred Stocks
- Risk Level: Moderate
- Potential returns: Modest to high
Preferred stocks combine the characteristics of stocks and bonds in one security, providing investors with dependable income payments plus the potential for shares to appreciate over time.
Shares of preferred stock are issued with a set face value and income from preferred stock gets preferential tax treatment, as qualified dividends tend to be taxed at a lower rate than bond interest.
10. Dividend Aristocrats
- Risk level: Moderate
- Potential returns: Moderate to High
Many public companies pay dividends, but the dividend aristocrats are special. These companies have demonstrated remarkable long-term stability and reliability in their dividend payouts.
A public company is considered to be a dividend aristocrat after having increased its annual dividend payments for a minimum of 25 years in a row. There are other qualifications, including being included in the S&P 500 index, among other qualifications. But what matters for investors is that these companies have maintained good dividend yields over the long term.
Owning shares of a public company can be riskier than other options on this list. But the dividend aristocrats can also provide you with dependable cash flow, no matter what the stock market is doing, plus the chance of appreciation over time.
What to Consider Before Choosing a Low-Risk Investment
According to financial planner and founder of Equanimity Wealth Michael Rodriguez, it’s important to consider the following before picking a low-risk investment:
- Your comfort with potential losses. If market swings stress you out, go ultraconservative.
- When you need the money. Shorter timelines need more stable options like high-yield savings or Treasury bills.
- How quickly you might need access to your cash. Some investments charge penalties for early withdrawal.
- Tax implications. Some options, like municipal bonds, offer tax advantages that boost your real returns.
- Inflation. Consider whether your “safe” investment keeps up with inflation, which can silently erode your purchasing power.
- The protection behind each option. Bank products have FDIC insurance, but other investments don’t offer that.
– Michael Rodriguez, CFP and founder of Equanimity Wealth.
What is Risk Tolerance?
Risk tolerance is your personal comfort with uncertainty. When you invest, there’s a chance of losing some or even all of your money. Or, you might achieve lower returns than what you expected.
The higher your risk tolerance, the more of a chance you’re willing to take on an investment. In investing, higher risks generally mean higher rewards.
Your risk tolerance inevitably depends on how much money you can comfortably part with. If you can’t afford to lose any money, your risk tolerance is low. If you have a cushion, your risk tolerance is likely higher.
The amount of money you have to invest isn’t the only factor when it comes to risk tolerance, however. Your temperament matters, too. If you tend to get stressed by market volatility and react impulsively, your risk tolerance is lower. If, on the other hand, you can handle short-term fluctuations and stay committed to your investment strategy, then you have a higher risk tolerance.
Understand Your Risk Tolerance
Although each of the investments listed above is considered low risk, there is still a sliding scale of risk associated with them.
Plopping your money into a certificate of deposit that guarantees a specific rate of return will be a much lower risk than entering the world of the dividend aristocrats.
In other words, even a “low-risk” investor should spend some time considering just how much risk they can tolerate, and pick an investment accordingly.
Know Your Time Horizon
Knowing when you want to access your money, your investing time horizon, is also essential when it comes to investing.
Certain certificates of deposit charge fees for withdrawing your money before the maturity date, for example, while money that’s in a high-yield savings account is yours pretty much at the click of a button or ATM visit.
Use your plans for this money (e.g., monthly income, home down payment in five years, retirement income, etc.) to also help dictate where you decide to invest.
Looking For A Financial Advisor?
Get In Touch With A Pre-screened Financial Advisor In 3 Minutes
Frequently Asked Questions (FAQs)
How do you know if an investment is low risk?
You can gauge the risk level of a type of investment by assessing the protections that are in place. Is it a bond backed by the U.S. government? In that case, it’s extremely low-risk. Is it a bank account insured by the FDIC? Then your money will be safe. Is it an investment-grade corporate bond? Then it’s very likely that your money will be safe, but there’s still a small chance that the company might fail.
What are the pros and cons of low-risk investments?
The main draw of low-risk investments is that there’s little to no chance of losing your money. The drawback, however, is that these investments tend to yield lower returns than higher-risk investments. Usually, the more risk involved, the higher the potential reward.
What low-risk investments have the highest returns?
Banking products like high-yield savings accounts and certificates of deposit are low-risk options with decent returns. Because these accounts are insured, you won’t risk losing your money.
Corporate bonds, preferred stocks and dividend aristocrats involve a moderate level of risk, but the potential returns are much higher.
Where is the safest place to invest?
The safest places to invest are usually securities offered by the U.S. Treasury, securities that have guaranteed returns, like fixed annuities, or bank accounts insured by the government.
