During a recession, the best investments may not be what you think. Many investors make the error of being more conservative when the greatest long-term strategy is to become more aggressive, increasing exposure to assets with potentially better returns.
Markets are quite volatile right now, in case you haven’t noticed. Stock market indices are fluctuating dramatically from day to day, inflation continues at four-decade highs, and the Federal Reserve is raising interest rates. Banks may soon begin to raise average percentage yields (APYs), but the average savings account currently pays only approximately 0.06% APY.
While some of the top high-yield savings accounts provide higher rates, bank deposits do not provide much in the way of income. Fortunately, it is not difficult to obtain larger returns without taking on excessive risk or exposing your portfolio to the volatile stock market. Check out our list of seven low-risk investments that can help you increase your money securely.
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Low-Risk Investment Ideas
Low-risk investments may help you raise your profits more quickly than a traditional savings account. These products, unlike bank accounts, really aren’t FDIC insured, so you might still lose money. Before making more income-generating investments, make sure you have a fully equipped emergency fund.
These seven assets can help you increase your profits faster than the typical savings account. However, keep in mind that, while they are low-risk investments, they are not risk-free. These products, unlike bank accounts, are not FDIC guaranteed, therefore you can still lose money.
However, you may be ready to accept a bit more risk in exchange for better rates of return from products that nonetheless provide excellent liquidity and simplicity of access. Make sure you have a fully stocked emergency fund before investing more income that you may need in a hurry to preserve excellent financial health.
Treasury Notes, Bills of Exchange, and Bonds
Government bonds are your first and best option if you want to earn a slightly higher interest rate than a savings account without taking on much more risk. Treasury bonds are currently earning 2.22% for one month and up to 2.93% for 30 years (as of August 2022).
Bonds issued by the US Treasury are backed by the US government’s complete faith and credit, which carries a lot of weight. The United States has always fulfilled its obligations. If you require access to your cash before the debt matures, this makes government debt more dependable and simpler to acquire and sell on secondary markets. This stability, however, implies that ties may fail.
Bonds issued by corporations
High-grade corporate debt may be a smart alternative if you’re ready to tolerate a little more risk in exchange for greater yields. These bonds, which are issued by well-established, high-performing firms, often provide greater yields than Treasuries or money market accounts. According to the most recent statistics from the St. Louis Federal Reserve, 10-year high-quality bonds provide an average interest rate of 4.78% as of July 2022.
While high-quality corporate bonds are typically secure, you can still lose money if:
Interest rates rise. Because the interest rates that bonds pay are often fixed for a set period, your money will not receive the higher rate. If you need to sell your bonds, you may have to sell them for less than you purchased for them if interest rates have risen generally. If you keep your bonds until they mature, you will receive the face amount plus interest.
Mutual Funds for Money Markets
Money market mutual funds invest in short-term assets such as overnight commercial paper. Even the finest money market funds often provide little to no return. Unlike Treasury securities and corporate bonds, money market funds provide investors with absolute liquidity: there is almost no volatility, and you may withdraw your money at any moment.
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It should also be noted that many banks provide money market mutual funds. If you don’t have a brokerage account or don’t want to get one, you may be able to invest in money market funds through your bank.
Annuities with Fixed Payments
Fixed annuities are a form of annuity contract in which investors pay a one-time lump amount in return for a succession of payments over time. Fixed annuities function similarly to certificates of deposit in that you agree to restrict access to your money for a specific period in exchange for a higher-than-average interest rate.
According to Blueprint Income, a fixed annuity marketplace, fixed annuity interest rates are paying up to 4.80% for a 10-year term as of August 2022. Keep in mind, however, that higher interest rates are frequently offered by less reputable insurers, implying that they are more likely to fail on payment.
Remember that, like CDs, there may be penalties if you need to access all of your money before the fixed annuity matures. However, you will often have penalty-free access to a part of your money each month.
Preferred stock functions similarly to a mix of stocks and bonds in that it provides part of the potential for appreciation of common stocks while also delivering the consistent income payments of bonds. In reality, preferred stock usually pays bigger dividends than corporate bonds since, unlike bonds, payment is not guaranteed.
Since 1900, preferred equities have provided yearly returns of more than 7%, the majority of which have come through dividend payments.
In addition to dividends, a repurchase may increase the value of your investment. Many corporations have recently bought back preferred shares, generally at a somewhat higher price than they were sold for, because preferred equities pay larger dividends than corporate debt and hence cost companies more.
Dividend-Paying Common Stocks
In addition to preferred stock, several common equities are relatively secure possibilities for individuals seeking a greater income in this low-interest-rate climate. Among these are real estate investment trusts (REITs) and utility equities, which have traditionally been seen as safer, less volatile, and more dependable in terms of dividend payments.
Individual equities, such as ordinary and preferred stocks or bonds, do not diversify. Because you can only acquire stock or bonds from one or two firms, they are inherently hazardous. What happens if such businesses fail?
You may invest in hundreds or thousands of individual stocks and bonds using index funds. This considerably reduces the risk you face while investing while yet providing high interest or dividend rates.
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Always have cash reserves in liquid savings account that you can access immediately if needed. However, there are solutions for money that you need to be fairly liquid but want to get a better return on. Even when interest rates are low, money market funds, annuities, government, and high-grade corporate debt remain some of the greatest low-risk, higher-yielding investments.
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