8 Best Low-Risk Investments of 2023

The market is experiencing extreme volatility, which has pros and cons for investors. With these market trends, it is essential to diversify your investment portfolios with a mix of high and low-risk assets. Below are some of the best low-risk investment options for 2023. 

Best Low-Risk Investments of 2023:

1. High Yield Savings Accounts

A high-yield savings account is one of the best low-risk investments you can make with your money to diversify your financial portfolio. This account is treated like a traditional savings account with a much higher return on interest and the ability to withdraw at leisure.

Most traditional savings accounts yield an annual interest rate between 0.04% and 0.06%, while high yield interest rates can range from 1.0% to 3.5%, depending on the lender and the current state of the market.

Due to these rates being lower than a brokerage account, per se, it is best used to hold your cash for a short period as it does not beat inflation rates.

High-yield savings accounts are suitable for saving money for a vacation or an emergency fund. If you are trying to put money aside for these short-term goals, you can save some money on interest. At the same time, it sits, rather than risking a market drop and potentially losing all of your principal balance, leaving you in a pickle come vacation time.

A high-yield savings account is considered one of the safest ways to invest some of your money because you will not risk the chance of losing it. Most accounts are government-backed, or FDIC insured for up to $250,000, so you can get your money back if it comes down to that.

2. Series I Savings Bond

A Series I Savings Bond is a low-risk, government-backed investment that yields a decent return and is compounded semi-annually. These bonds also adjust with inflation rates, so if inflation rises, the bond will adapt to keep up, which protects your initial investments and vice versa. If inflation falls, the interest on the bonds falls. Currently, the rate is 9.62%.

You can purchase your Series I bonds directly on the U.S. treasury department website, and there you can also find the current interest rates. With these bonds, there’s a penalty if you withdraw money before five years.

3. Certificates of Deposits

A CD or certificate of deposit is a timed deposit savings account in which you open to hold the money you do not plan on spending for a certain period of time, and in return, you will gain interest over that time. The average CD interest rates currently range from 1.05% to 1.09%.

CDs are customizable for short and long maturity terms, depending on your financial goals. During these terms, your money will earn interest until maturity. If you decide to withdraw your money before the maturity date, penalty fees will be applied.

Depending on your financial goals, you can open a CD with a term period of as short as 28 days to 10 years. As well, some banks require a minimum deposit upon account opening. Longer maturity terms yield higher interest rates and vice versa.

Some popular reasons people open up CDs are for purchasing a car, buying a home, planning a vacation, paying for college, or a wedding.

4. Treasury Notes, Treasury Bonds, and Bills

Treasury notes, bonds, and bills are low-risk government bonds. They perform slightly better than savings accounts and currently yield around 3.9% to 4.4% on a one-year maturity term.

Treasury bonds are fully backed by the U.S. government but each act differently from the other. Treasury bills usually mature in one year or sooner. Treasury notes can mature in 10 years, and bonds can develop in 30 years.

With these types of investments, it is best practice to hold them until maturity to gain maximum returns. There are penalties if you withdraw your funds before the maturity date.

You can buy and sell government bonds through second-party platforms and auctions, and they are priced through a bidding process. 

5. Corporate Bonds

Corporate bonds are sold by companies and come with various risks. High-grade corporate debt can yield higher returns with higher risk factors. These bonds usually perform better than savings accounts and treasury bonds.

As of 2022, corporate bonds yield around 5.18% annually over ten years. Corporate bonds are considered pretty safe but do have the risk potential. If interest rates go up, you are at risk because once you purchase a bond, you are locked in at a specific rate regardless of inflation.

If the corporation or company that issued the bond goes out of business, you are at a high risk of losing your investment. This is why it is essential to know the company history and choose a highly rated company before investing. 

6. Dividend Stocks

Dividend stocks are a bit riskier than savings accounts or government bonds but can yield a higher return depending on how long you hold. On the other hand, dividend stocks are safer than highly volatile or high-growth stocks because they pay out cash dividends to their holders.

Because they pay out dividends, this reduces their volatility even though stocks will still fluctuate with the market. This isn’t to say that there is no risk attached to dividend stocks, but they are on the safe end of the stock market.

Some popular types of dividend stocks that you can invest in are REIT (real estate investment trusts) dividends and utility dividends. They are currently hovering at interest rates of 1.04% to 2.93%. REITs and utility stocks have proven to be historically safer and more reliable than dividend stocks.

It is important to note that there are still risks involved with investing in dividend stocks, so it is essential to research each company before investing. 

7. Preferred Stocks

Preferred stocks differ from common stocks in that preferred stocks are a hybrid between stocks and bonds, and preferred stockholders have claims to dividend payouts. In other words, a company has to pay its stockholders distribution payments before they pay its common stockholders.

Preferred stocks have yielded annual returns of more than 7%, and most of that comes from dividend payments and are paid out monthly or quarterly. These payments are a source of income that can be reinvested.

Like any other investment, preferred stocks do come with risk. They are considered less risky than common stocks but riskier than traditional government bonds, which is why their return sits at the median between the two. 

8. Index Funds

If you are intimidated by the stock market, index funds are an excellent place to start. Index funds are one of the best ways an average person can generate wealth over time. Index funds allow you to invest in many different stocks or bonds simultaneously. In doing this, you significantly decrease your risk factor with the potential to make higher gains.

These investments are built to withstand market crashes as they are more likely to bounce back because they are highly diversified and perform over time.

What are low-risk investments?

Low-risk investments are the less risky types of assets you can acquire to build wealth over time. Low-risk investments mean little volatility is associated with this investment and little chance of completely losing your principal investment, making them safe investments.

Lower-risk investments also come with lower return rates, which is essential for personal finance. The risk in this type of investment is that there is a chance that these rates cannot keep up with inflation resulting in lowered cash value/ buying power in the future.

Low-risk investments are more useful for short-term periods, whereas high-risk investments can be better long-term because they end up leveling out when you buy and hold.

If you are simply looking for a place to store your money for a short period while collecting small amounts of interest, a low-risk investment is the right move for you. 

The bottom line

Making low-risk investments is significant to your financial future. Diversifying your portfolio is guaranteed to grow your wealth and avoid any sudden market crashes or extreme inflation. 

Check out our book selection today if you need to learn more about making suitable investments.