Years ago, people could invest money and feel fairly secure they would eventually make a profit. Yes, there were highs and lows, but overall investors were not too concerned about losing their life savings in a financial crash or crises. In recent years, however, investments have become risky at best with huge fluctuations in valuations, especially in the stock market. Countless individuals watched their money disappear as stocks dipped and spiraled out of control. This has led many investors to ask, “Is anything safe anymore?” Here are 5 safe investments for your money – some are higher risk, higher reward investment opportunities while others provide a stable, but low risk-free return.
Treasury Bills and Government Bonds
Government bonds, or treasury bonds, are one type of investment that carries far less risk than many current stock or bond options. Investments are an excellent way to make passive money if and only if funds are allocated and diversified properly; nonetheless, the safe bet isn’t always the most profitable. Series EE bonds issued by the Federal government and some banks offer fixed interest rates, but generally they are fairly low in comparison to higher-risk investments. Depending on the maturity, which can range between 1 month and 30 years, the Treasury will payout an interest rate between .01% and 6%. Oftentimes, investors will look to foreign governments for increased interest rates on bonds, but once again, they are not as secure as bonds issued in the US.
Note: The difference between a Treasury bill and Treasury bond is that t-bills are short-term securities that mature in less than a year, allowing investors to purchase 4-Week, 13-Week, 26-Week, or 52-Week bills. Technically speaking, t-bills do not payout an interest payment, but instead are sold at a discount. For instance, a Treasury bill with a face value of $1,000 will be sold at $950, and when the bond is redeemed, you will be paid $1,000. You will have earned $50 in interest for an effective yield of 5.2%. On the other hand, Treasury Bonds are long-term securities and payout interest semi-annually, or once every 6 months.
Savings Accounts and CDs
As kids, most of our parents encouraged us to put some of our allowance into a savings account. They stressed the fact that by saving money, it would be there when we wanted to buy something. Meanwhile, they not only had savings accounts, but purchased CDs (certificate of deposit) as well. Certificate of deposits guarantee a higher rate of return if you choose a long term maturity and leave the investment alone for the agreed-upon timeframe before removing the funds or “rolling them over”. The Federal Deposit Insurance Corp (FDIC) insures your savings account and CDs for up to $250,000. Therefore, as long as banks keep funding the FDIC, everything deposited at the bank is secure.
Even though a savings account or CD is safe, does this type of investment make sense in the long run? Currently, low interest rates near .10% keep money invested in savings accounts fairly stagnant, seeing very little increase from month to money, and even year to year. Nonetheless, you can earn more interest if you have $10,000 or more in your savings. However, the best savings accounts I’ve found are high-yield ones from online-only banks such as Ally, Ever ING Direct, Perkstreet, EverBank or Discover. I am currently a Discover Card customer, and it was extremely easy to open an account online with Discover Bank and get access to their .80% interest rate for savings accounts.
CDs offer a little higher interest rate, but US CDs offer less income than foreign-currency-denominated CDs. Foreign CDs are a little riskier, and could fluctuate as dollar terms rise and fall, but the investor can make more money and the investment is still insured. Our parents were right about savings accounts. We do need to keep some of our money safe, because fast and high return investments are very risky, especially today.
Many would think that investing in real estate in this still-fluctuating market is just not practical. However, the reality is that real estate has realized a fairly decent recovery in the past 18 months in many areas of the country, and is therefore considered a moderately safe and tangible investment once again. The housing crisis continues, but home prices are close to bottomed-out, so the smart investor can see this as a chance to purchase property and hold it for a number of years to allow the value to climb. Investments conducted in this manner will see a fairly decent return, and the property can also be utilized for passive rent income while you wait to sell at a profit.
Precious Metals – Gold
Over the years, gold and precious metals have earned the reputation of a smart investment option. Jewelers are always touting the fact that a ring purchased today is an investment in the future. While that may work to make a sale, the reality is that even though this type of investment is fairly safe, if something happens to the gold or silver, such as theft, misplacement, damage or rust, the investment has depreciated or is gone. The prices of gold, platinum, and palladium have risen sharply over the past decade and many believe that if the dollar crashes, gold would hold its value.
Consider gold and precious metals to be a good long-term investment; however, be mindful that gold has seen a run-up in years due to huge economic growth as well as a meteoric rise in the amount of currency circulation and wealth creation. In recent years, precious metals and commodities have seen a bounce due to the Federal Reserve flooding the financial system with cash. When investing, remember that there is always the chance that commodities may decline in the short-term and that timing is essential to the success of your gold investment.
Investors willing to keep their money in one place for the long term can look toward market indexes as a relatively safe option. Even though the stock market has seen its share of highs and lows during recent years, market indexes have remained fairly steady. People who want to invest in the market but are afraid of the potential collapse of high-risk stocks can choose this option and feel fairly confident that their money isn’t going to disappear overnight, and the return would probably yield more than conventional savings and CDs could offer in the long run.
There are tough choices concerning where to invest our dollars. Depending on the fluctuating economy, riskier investments can bring about a quicker return, but there is also a chance that some, if not all, of the money will be lost. Investors have to ask themselves how much they are willing to gamble and what funds they are going to designate for safe investments. In this manner, they stand a chance at a decent return while keeping some money safe for long-term growth.