Best Low Risk Investments for High Return

With the rising cost of living, it’s imperative that we invest. And, obviously, when we invest our hard-earned dollars, we want to generate high returns while enduring little risk.

Possible?

Well, to a point. In terms of returns, there are better low-risk investments than others, but it is definitely still true that the higher return you want, the more risk you’ll have to accept.

But as you near retirement, or if you’re saving for your high school senior’s college fund, your appetite for risk drops precipitously. You simply cannot afford to see a huge drop in the market right before you need to begin withdrawals.

Our List of Low-Risk Investments

Here are a few of the best low risk investment options, some that even let you earn a respectable return with almost no risk at all, whether you’re investing $10,000 or $100,000.

1. High-Interest Savings Accounts

2. Dividend Paying Stocks and ETFs

A safer bet would be to invest money into a dividend stock mutual fund.

With this type of mutual fund, the fund company targets stocks that pay nice dividends and does all of the work for you. You also get diversification so that one or two stocks can’t tank your entire investment.

3. CIT Bank No-Penalty 11 Month CD

No matter how hard you look, you won’t find an investment more boring than a Certificate of Deposit. If you’re in the market for one of these low-risk investment vehicles, you can get one through your bank, credit union, or even through your investment broker.

With a Certificate of Deposit (CD), you deposit your money for a specific length of time in exchange for a guaranteed return no matter what happens to the interest rates during that time period.

As long as you get a certificate of deposit with an FDIC insured financial institution, you are guaranteed to get your principal back as long as your total deposits at that specific financial institution are less than $250,000. The government is guaranteeing you cannot have a loss, and the financial institution will give you some interest on top of that.

How much interest you earn is dependent on the length of the CD term and the current interest rates when you purchase your CD.

CD rates are generally fairly low, but you can usually get more interest if you get a certificate of deposit for a period of at least 1-2 years.

In my experience, CIT Bank has a great reputation for offering some of the most competitive CD rates.

4. LendingClub

Instead of having to go through every single loan (which you can still do), their online tools allow you to target a certain rate of return and search only through loans that fit the bill.

I have been investing in Lending Club and Prosper for several years and have had less than 3% default rate while getting a total annual return (after defaulted loans) of 8.33%.

What is even better is that you can invest as little as $25 in a loan to get started. I had one friend make a 5,000 dollar investment in Lending Club and buy into 200 different loans. Now that is diversification!

Lending Club, in particular, has done a great job in setting up their collection practices in order to protect investors. (Lend Academy did a great interview with LC’s Head of Collections.)

Learn more about how I did with P2P lending in my review of LendingClub or Prosper or get started with peer-to-peer lending with companies like Lending Club and Prosper. Depending on your appetite for risk and how much capital you have to invest, you could score some decent returns without the stress that comes with high-risk investments.

5. Fundrise

If you like the idea of investing in real estate but shudder at the thought of being a landlord or flipping houses, a REIT is your ideal investment.

Real estate investment trusts function a lot like mutual funds. They give investors the opportunity to buy shares in real estate ventures, earning income on the projects, which can range from offices to healthcare facilities to retail space to residential properties and everything in between.

As the real estate properties make money, so do the shareholders, in the form of dividends. There are several ways to invest in REITS, with Fundrise being the easiest and one of the most profitable.

Fundrise operates like Lending Club, except all of the investments are geared towards real estate. They keep risks low and interest high by carefully vetting the projects they invest in. You can get started investing in Fundrise’s Starter Portfolio with as little as $500, making it an appealing option for beginning investors.

Start investing in real estate with Fundrise>>

6. Treasury Inflation Protected Securities (TIPS)

The US Treasury has several types of bond investments for you to choose from.

One of the lowest risk is called Treasury Inflation Protection Securities, or TIPS. These bonds come with two methods of growth. The first is a fixed interest rate that doesn’t change for the length of the bond. The second is built-in inflation protection that is guaranteed by the government.

Whatever rate inflation grows during the time you hold the TIPS, your investment’s value will rise with that inflation rate.

For example, you might invest in TIPS today that only comes with a 0.35% interest rate. That’s less than a certificate of deposit’s rates and even basic online savings accounts.

That isn’t very enticing until you realize that, if inflation grows a 2% per year for the length of the bond, then your investment value will grow with that inflation and give you a much higher return on your investment.

TIPS can be purchased individually or you can invest in a mutual fund that, in turn, invests in a basket of TIPS. The latter option makes managing your investments easier while the former gives you the ability to pick and choose with specific TIPS you want.

Want to protect your portfolio from inflation? Purchase TIPS through a great broker like:

• Ally Invest
• E*TRADE
• TD Ameritrade

7. Money Market Funds

A money market fund is a mutual fund created for people who don’t want to lose any of the principal of their investment. The fund also tries to pay out a little bit of interest as well to make parking your cash with the fund worthwhile. The fund’s goal is to maintain a Net Asset Value (NAV) of $1 per share.

These funds aren’t foolproof, but they do come with a strong pedigree in protecting the underlying value of your cash.

It is possible for the NAV to drop below $1, but it is rare. You can park cash in a money market fund using a great broker like TD Ameritrade, Ally Invest, and E*TRADE or with the same banks that offer high-interest savings accounts.

While you may not earn a lot of interest on your investment, you won’t have to worry about losing vast amounts of your principal or the day-to-day fluctuations in the market.

8. Corporate Bonds

Unlike U.S. Treasury bonds, corporate bonds are not backed by the government. Instead, a corporate bond is debt security between a corporation and investors, backed by the corporation’s ability to repay the funds with future profits or using its assets as collateral.

Since you are taking on risk by investing in a company, the returns on corporate bonds are higher than other types of bonds, no matter how credible the company’s reputation is. While that’s reassuring enough for some investors, if you’re looking for truly low-risk corporate investing, you should consider bond funds.

Bond funds come in the form of ETFs or mutual funds and help to diversify your investment across a number of bonds.

Robo advisors provide a great opportunity for investing in bond funds. If you’re looking to choose what types of funds to build into your portfolio but don’t want to deal with the hassle of constantly balancing your account and re-allocating funds, M1 Finance is your go-to.

M1 offers fee-free service, expertly curated portfolios, and a $0 minimal investment. You can learn more in our full M1 Finance review.

Invest in bond funds with M1 Finance>>

9. Municipal Bonds

When a government at the state or local level needs to borrow money, they don’t use a credit card. Instead, the government entity issues a municipal bond. These bonds, also known as munis, are exempt from Federal income tax, making them a smart investment for people who are trying to minimize their exposure to taxes.

Most states and local municipalities also exempt income tax on these bonds but talk to your accountant to make sure they are exempt in your specific state.

What makes municipal bonds so safe? Not only do you avoid income tax (which means a higher return compared to an equally risky investment that is taxed), but the likelihood of the borrower defaulting is very low. There have been some enormous municipality bankruptcies in recent years, but this is very rare. Governments can always raise taxes or issue new debt to pay off old debt, which makes holding a municipal bond a pretty safe bet.

You can buy individual bonds or, better yet, invest in a municipal bond mutual fund at brokers like:

• TD Ameritrade
• Ally Invest
• E*TRADE

10. Credit Card Rewards

The idea that credit card rewards could provide a low-risk return on your money might sound preposterous, but it’s not that off the wall when you really think about it. By picking up a cash back credit card, you earn “points” that translate into real money.

And in reality, the “rewards” you earn with some of the top cards are far more lucrative than anything you might earn with a Certificate of Deposit or online savings account.

Here’s how these offers work:

Let’s say you picked up a Chase Sapphire Preferred^® card and put your regular spending on it to earn the signup bonus. Once you spent $4,000 on your card in 90 days, you would earn 50,000 points worth $500 in gift cards or cash back. If you spent that $4,000 on bills you would normally pay like groceries, daycare, or utilities, and paid your card off right away, this is the closest thing to “free money” you’ll ever find!

• Chase Freedom^® – The Chase Freedom^® card offers $150 in free money after you spend just $500 on your card within 90 days. In addition to the signup bonus, you’ll also earn 5x points on your first $1,500 spent in categories that rotate every quarter, plus 1x points on everything else. Redeem your point for statement credits or gift cards, or use them to shop directly on Amazon.com.
• Chase Freedom Unlimited℠ – The Chase Freedom Unlimited℠ offers an alternative to the traditional Chase Freedom card. With this new card option, you’ll earn an unlimited 1.5% cash back for every dollar you spend. In addition, you’ll also get a $150 signup bonus after you spend just $500 on your new card within 90 days. If you don’t like keeping track of rotating categories, this card is an excellent alternative. Best of all, there is no annual fee.

If you want to learn more about the easy money you can score with credit card rewards, check out our guide on the best cash back credit cards.

11. Annuities

Annuities are a point of contention for some investors because shady financial advisors have over-promoted them to individuals where the annuity wasn’t the right product for their financial goals. They don’t have to be scary things; annuities can be a good option for certain investors who need help stabilizing their portfolio over a long period of time.

If you’re in the market for an annuity, however, be aware of the risks and talk with a good financial advisor first.

Annuities are complex financial instruments with lots of catches built into the contract. Before you sign on the dotted line, it’s important to understand your annuity inside and out.

There are several types of annuities, but at the end of the day, purchasing an annuity is on par with making a trade with an insurance company. They’re taking a lump sum of cash from you.

In return, they are giving you a stated rate of guaranteed return. Sometimes that return is fixed (with a fixed annuity), sometimes that return is variable (with a variable annuity), and sometimes your return is dictated in part by how the stock market does and gives you downside protection (with an equity indexed annuity).

If you are getting a form of guaranteed return, your risk is a lot lower. Unlike the backing of the Federal government, your annuity is backed by the insurance company that holds it (and perhaps another company that further insurers the annuity company). Nonetheless, your money is typically going to be very safe in these complicated products.

12. US Savings Bonds

US Savings Bonds are similar to Treasury Inflation Protected Securities because they are also backed by the United States Federal government. The likelihood of default on this debt is microscopic which makes them a very stable investment.

There are two main types of US Savings Bonds: Series I and Series EE.

Series I bonds consist of two components: a fixed interest rate return and an adjustable inflation-linked return. They are somewhat similar to TIPS because they have the inflation adjustment as part of the total return.

The fixed rate never changes, but the inflation return rate is adjusted every 6 months and can also be negative (which would bring your total return down, not up). Series EE bonds just have a fixed rate of interest that is added to the bond automatically at the end of each month (so you don’t have to worry about reinvesting for compounding purposes).

Rates are very low right now, but there is an interesting facet to EE bonds: the Treasury guarantees the bond will double in value if held to maturity (which is 20 years).

That equates to approximately a 3.5% return on your investment. If you don’t hold to maturity you will only get the stated interest rate of the bond minus any early withdrawal fees.

Another bonus to look into: if you use EE bonds to pay for education, you might be able to exclude some or all of the interest earned from your taxes.

Looking to purchase some Series I or Series EE Bonds? You can do that directly through TreasuryDirect.gov.

13. Cash Value Life Insurance

Another controversial investment is cash value life insurance. This insurance not only pays out a death benefit to your beneficiaries when you die (like a term life insurance policy) but also allows you to accrue value with an investment portion in your payments.

Whole life insurance and universal life insurance are both types of cash value life insurance. While term life insurance is by far a cheaper option, it only covers your death.

One of the best perks of using cash value life insurance is the accrued value can not only be borrowed against throughout your life but isn’t hit with income tax.

While cash value life insurance isn’t for everyone, it is a clever way to pass some value onto your heirs without either side being hit with income tax.

14. Online Checking Account

Just like high yield savings accounts, online checking accounts let you earn small amounts of interest on the money you deposit. If you’re going to park your money in the bank anyway, you could surely appreciate earning some interest along the way. Best of all, many online checking accounts charge zero or minimal fees to get started.

When looking for an online checking account that actually lets you earn interest, look for a bank with excellent customer service, a user-friendly online interface, and competitive interest rates.

If you want utmost flexibility, it’s also important to seek out an account that doesn’t impose account minimums or deposit requirements. And if you want to withdraw money frequently, you’ll want to make sure you have access to local, no-fee ATMs as well.

15. Bank Bonuses

If you have some extra money you won’t need for a while, you can occasionally earn some free cash with a bank bonus. Most banks will offer a bonus as an incentive for you to sign up, and these bonuses can be worth several hundred dollars on their own.

Bank bonuses are sometimes regional, however, and can depend on the local banks in your area and the products they offer. I have seen Capital One offer bonuses worth $50 or more, and Chase Bank is almost always offering a $150 or $250 bonus for individuals who open a new checking or savings account.

In exchange for your bank bonus, you’ll be asked to keep your money on deposit for anywhere from 6 to 18 months. In addition, you may have to set up direct deposit to your new account or use a bank-issued debit card for a certain number of transactions within the first few months.

Just remember to read through all the fine print to learn about any fees that might be levied and how you can avoid them.

By jumping through these hoops, you can usually earn a few hundred dollars for your efforts. Best of all, you won’t have to worry about losing a single cent of your deposit. And if you decide not to keep the account for the long haul, you can always close it once you earn the bonus and meet all of the bank’s requirements.

16. Preferred Stock

Adding on to the dividend stock theme is preferred stock. Preferred stock is a type of stock that companies issue that has both an equity (stock) portion and a debt portion (bond). In the hierarchy of payouts to forms of investments, preferred stock sits between bond payments (which come first) and common stock dividends (which come last).

Preferred stock are not traded nearly as heavily as common stock, but do have less risk than the common stock. It is just another way to own shares in a company while getting dividend payments.

You can track down preferred stock investments at:

• Ally Invest
• E*TRADE
• TD Ameritrade

The Bottom Line

As you get closer to retirement, it’s important to reduce your risk as much as possible. You don’t want to start losing capital this late in the game; since you have many years of retirement ahead of you, you want to preserve your cash.

The best low-risk investments can help you do just that. By letting you earn nominal amounts of interest on your money with little risk, you can help your nest egg keep up with inflation without losing your shirt. Just remember to read the fine print and educate yourself along the way. And if you’re ever in doubt over an investment product or service, speak with a qualified financial advisor and ask as many questions as you can.

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Check out some of our great reviews to help you get a better grasp on what will meet your investment needs:

• Motif Investing Review
• Lending Club Review
• TD Ameritrade