Best Safe Investments – Where to Park Your Money
Joy Wallet is advertiser-supported: we may earn compensation from the products and offers mentioned in this article. However, any expressed opinions are our own and aren't influenced by compensation. To read our full disclosure, click here.
Our economy has been put through the wringer these past two years and it is facing an impact of inflation right now. The Federal Reserve is preparing to increase the interest rates, and it does look like this year could be a challenging ride for us investors. This is why it is crucial to stay disciplined. If you build a portfolio with low-risk assets, it will help reduce the impact of volatility.
But this also means you take a low risk and generate low returns in the long term. If your goal is to preserve your capital while maintaining a consistent source of income, it works fine. Still, if you seek capital appreciation and growth, you must consider the investing strategies that align with your goals. High-risk investment options can generate higher returns in the longer term. But we are always on the lookout for safety-whether it is diving into the swimming pool or entering the world of investments.
When you start your investment journey, there are two catches: Risk-free and some risk. If you do not want to take any risk at all, you will choose investments that generate lower returns, but inflation often reduces the purchasing power of money. And if you are ready to take some risk, you could break even or generate a substantial income over time. This is why it is smart to look for safe investments that generate consistent income and keep your invested amount safe in case of volatility. Here are the best safe investments you can choose from.
In this article
Overview of the best safe investments
Investment | Best For |
High-Yield Savings Accounts | Starting small with investments |
Certificate of Deposit | Short-term investors |
Savings bonds | Risk-averse investors |
Money market funds | Helps with diversification |
Corporate bonds | Fixed income |
Treasury bills, bonds, and notes | Minimal risk |
Dividend-paying stocks | Steady income |
Preferred stocks | High stability at low risk |
Money market accounts | For short-term goals |
Index funds/ETF | Long-term goals |
Real estate | Helps diversification of portfolio |
Government bonds | Those close to retirement |
Bond mutual funds | Those planning for long term goals |
Best Safe Investments
High-yield savings accounts
This is not technically an investment, but savings accounts are a great choice for those who want high safety and minimal risk. It will offer a consistent return on the money, and you will find high-yielding options easily. You can also enjoy a higher yield if you check the rates and shop around. The savings account is safe, and you will never lose your money. The majority of the accounts will be insured up to $250,000 by the government per account type per bank. Hence, even if the bank fails, you will be compensated. Inflation may erode the purchasing power, but cash will not lose dollar value.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Certificate of Deposit
When you invest in bank certificates of deposit, it remains in your FDIC-backed account. You can compare the rates and see what the banks offer before choosing one. Since the Feds increased interest rates and are expected to do so again this year, it makes more sense to buy short-term CDs and then reinvest them whenever the rates increase. You can also consider a zero-penalty CD as an ideal short-term investment alternative.
It will help eliminate the penalty in case of early withdrawals, and you can easily withdraw the money and move it to a higher rate-paying CD without the costs. If you can hold the CD for the entire term, the bank will give you a specific interest rate over the term. If you remove the funds early, you will lose a part of the interest. If you lock yourself up on a long-term CD and the rates rise, you will still earn a lower yield. Hence, compare the rates and choose the right CD for the short-term.
Savings bonds
If you want a safe investment strategy that adjusts for inflation, you can choose a Series I savings bond. Whenever inflation rises, the bond’s rate will be adjusted upward, and when inflation falls, the bond's payment will also fall. You can purchase the bond from TreasuryDirect.gov, which the U.S. Department of the Treasury manages. It is a good choice as you get a fixed rate and an inflation rate added to it every six months. The bond offers a sizable yield and protects your investment from the ravages of increasing prices. It is also backed by the U.S. government and is considered safe. Lastly, if the bond is redeemed before five years, there will be a penalty for the last three months of interest.
Money market funds
If you do not want to invest in CDs, you can consider money market funds. They are short-term bonds with low risk and are grouped together to help diversify risk. Mutual fund companies and brokerage firms sell the funds. The fund remains liquid and is pretty safe.
Corporate bonds
Several companies issue bonds that come from low-risk varieties to very risky ones. The high-yield corporate bonds have a low rate and low quality, but they have a higher risk. There is not only the interest rate risk but also the default risk. An interest rate risk is when the bond's market value fluctuates as the interest rate changes, while default risk is that a company could fail to make good on the promise to create interest and principal payments. If you want to mitigate the interest rate risk, you can select the bonds that mature over the next few years. Most long-term bonds are more sensitive to changes in interest rates. To reduce the default risk, you can choose high-quality bonds from well-known companies. Bonds are generally lower risk than stocks. And if the company goes bankrupt, bondholders will be higher in the pecking order than stockholders.
Treasury bills, bonds, and notes
The U.S Treasury issues Treasury notes, Treasury bills, Treasury inflation-protected securities, and Treasury bonds. All the bonds have varying maturity periods ranging from one year to 20 years. They are liquid securities that can be purchased or sold directly or even via mutual funds. It helps to keep the Treasury until maturity as you will not lose the money. If you sell them before the maturity date, you will lose some of the principal as the value will fluctuate when the interest rates fluctuate. With a rise in interest rate, the value of the bonds will fall and vice versa. Brokers sell them in increments of $100 or you can also buy them from TreasuryDirect.
- U.S. Treasury Inflation-Protected Securities is a good way to have the safety of the government bond and be protected against inflation risk.
- Treasury bills will mature in four weeks to one year, and they are sold at a discount on the face value. You will be paid the face value at the time of maturity. The bills have a higher interest rate for longer maturity dates, and the interest is tax-free for state and local taxes, but you have to pay the federal income tax.
- The treasury notes range from two to 10 years, and the interest is paid every six months. Based on the demand, you can buy the notes at a price equal to, less than, or even greater than the face value. The notes with a high-interest rate will have more demand, and their price could be greater than the face value.
- The treasury bonds mature in 20 to 30 years and pay interest every six months you hold them. Since the interest rate is guaranteed, the cost of the bond will go up and down, but if you sell them before maturity, you will suffer a loss.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Dividend-paying stocks
A great way to diversify your portfolio is to invest in individual stocks. They are not as safe as savings accounts, government debt, or even cash, but they are less risky options. It is ideal to pick the top dividend-paying stocks when choosing stocks to invest in. They are considered much safer than the growth stocks as they pay dividends and will help generate passive income. It also limits the volatility but does not eliminate it. This means the dividend stocks will respond to the market volatility but will not fall as far whenever the market is down.
Dividend-paying firms are much more mature and stable. Plus, they offer a dividend and a possibility of capital appreciation. Hence, you are not only depending on the stock's value but also receiving a regular income from the stock. The only risk is if the company runs into difficult times and suffers losses, it could trim the dividend, which could eventually affect the stock price. But the risk of losing all your money is minimal.
Consider the dividend yield when picking the stocks. If you are a beginner and have no idea how to make the most of the stock market, you can consider working with a financial advisor for investment advice. They can help you choose the right stocks for your portfolio.
Preferred stocks
There are two types of stocks issued by companies: common stock and preferred stock. The reason to invest in preferred stock is that it makes a consistent cash payout. However, the companies that issue preferred stock could also suspend the dividend, but they often make up for the missed payments. The company has to make payment on preferred stock before paying the common shareholders. Preferred stock is safer than stock and a low-risk version of a bond. The stocks also trade on the stock exchange, so they must be carefully analyzed before purchasing.
Money market accounts
You can think of a money market account similar to a savings account, except it needs a higher minimum deposit than a savings account. The interest rates on the accounts are higher, and you are free to spend the cash if you need to. But the account will have a limit on the monthly withdrawals. You can compare the rates and search for the best rates to ensure you are maximizing the returns. An advantage of investing in money market accounts is that they are protected by the FDIC and guarantee up to $250,000 per bank per depositor. This means there is no risk of losing your principal.
Index Funds/ ETF
All of us are aware of the volatility of the stock market. You may gain or lose in one day, and the one factor that keeps more people from buying the best stocks is the lack of funds. This could become even more difficult when you consider the risk factor. However, you can invest in index funds or exchange-traded funds and achieve diversification. Even if one company suffers losses, you have spread the risk across different companies, reducing the individual risk significantly. It is doubtful for a few hundred companies to sink simultaneously.
Real estate
While it may not be possible for everyone to invest in real estate, owning a piece of real estate through real estate investment trusts is possible. This way, you will be able to own a part of an asset at a low cost. The trust pools capital from numerous investors and helps you own a piece of the asset and earn dividends. You can become a property owner without buying, financing, or managing the property yourself. There are equity, mortgage, and hybrid REITs you can choose from.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Government bonds
The state and local governments sell municipal bonds to fund projects for the public good. The bonds are tax-free, making them a great option if you are working towards a retirement plan. Since bonds are tax-free and safe, they can be a good bonus for any savings outside the retirement accounts, 401(k), or Roth. Check the ratings of the bonds before making a decision.
Bond mutual funds
If you do not want to buy bonds directly, you can consider bond mutual funds. They have the lowest risk amongst all the mutual funds, and you can purchase any number of shares that you want. Mutual funds reduce the risk of losing your money and are considered highly safe and stable.
Summary of the best safe investments
Investment | Risk | Returns |
High-Yield Savings Accounts | Low | Fixed |
Certificate of Deposit | Low | Fixed |
Savings bonds | Low | Fixed |
Money market funds | Low | Fixed |
Corporate bonds | High | Varying |
Treasury bills, bonds, and notes | Low | Fixed |
Dividend-paying stocks | Moderate | Varying |
Preferred stocks | High | Varying |
Money market accounts | Low | Fixed |
Index funds/ETF | Moderate | Varying |
Real estate | High | Varying |
Government bonds | Low | Fixed |
Bond mutual funds | Low | Varying |
FAQs
What are the safest stocks?
If you are interested in owning individual stocks, you need to pick those of mature, well-reputed companies with consistent growth and profitability. They are also known as blue-chip stocks, and they often pay dividends.
What is suitable for short-term investment?
Money market funds, certificates of deposits, and short maturity bonds are ideal for the short term. They will mature in a couple of months, and you will have the money back. However, they may not hold well against inflation.
Which is a safe investment for 401(k)?
When considering 401(k) investments, there are many factors like age, risk tolerance, and your time to retirement. It is advisable to invest aggressively when starting out and then move towards less risky investments as you approach retirement. The aggressive investment options include stocks, and the safest options are bonds.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
The bottom line
As the economic uncertainties and inflation continue to rise, it is important to look for the safest investment to park your money. You need to ensure that the portfolio grows at least above the inflation rate to continue to have the purchasing power you need in retirement. Bank savings accounts are a good choice for short-term cash needs, but you should also look to other safe options for a diversified portfolio. When working towards building wealth, your investment portfolio should have a mix of safe assets that continue to generate returns and appreciate capital. Do not put all your money in a single asset; diversify as much as you can.
Consider your risk tolerance and financial goals before you invest your money. Putting all the funds in an FDIC-insured bank savings account will not make you enough money to handle inflation. Hence, consider other slightly riskier investments to reduce portfolio loss to inflation and achieve portfolio diversification. You need to balance safety and growth at its best.
Joy Wallet is an independent publisher and comparison service, not an investment advisor, financial advisor, loan broker, insurance producer, or insurance broker. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. Joy Wallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. We encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Featured estimates are based on past market performance, and past performance is not a guarantee of future performance.
Our site doesn’t feature every company or financial product available on the market. We are compensated by our partners, which may influence which products we review and write about (and where those products appear on our site), but it in no way affects our recommendations or advice. Our editorials are grounded on independent research. Our partners cannot pay us to guarantee favorable reviews of their products or services.
We value your privacy. We work with trusted partners to provide relevant advertising based on information about your use of Joy Wallet’s and third-party websites and applications. This includes, but is not limited to, sharing information about your web browsing activities with Meta (Facebook) and Google. All of the web browsing information that is shared is anonymized. To learn more, click on our Privacy Policy link.
Images appearing across JoyWallet are courtesy of shutterstock.com.
Editor
Vandita Jadeja is a financial writer and editor at Joywallet. She loves to read and write about money and brings a decade of experience from the financial industry.
Share this article
