While some low-risk investments have higher returns than others, the traditional reality is that investments with the highest risk also attract highest returns. This reality is however not entirely true since there are a number of low-risk investment options that attract very high returns.
If you are saving for a college fund or are approaching retirement, you should avoid high-risk investments and instead go for low-risk investment options that attract extremely high returns.
Here are some of these low risk investment options:
1. Peer-to-Peer Lending
Also known as P2P Lending, this low risk investment option is a highly recommended short-term investment. Rather than buy a company’s shares, you instead lend someone money in the hope they will pay you back with interest. With a careful screening of whom you are lending to, you can secure a good return on your investment.
However, P2P lending can be extremely risky if you fail to conduct a thorough screening. It is perfect for investors seeking higher returns without the stock market risks. There are handy screening tools that can help you search for companies with the best rate of return.
2. High Yield Savings Account
A high yield savings account is a risk-free way of earning good interest on your money. By depositing money, you earn a nominal interest. All you have to do is deposit money and let it earn interest for you. Look for high yield savings accounts with the most competitive interest, which does not charge any fees.
Besides offering the best interest rates, it is important to ensure the bank you are depositing your hard earned money with has a good reputation for quality customer service, easy deposits, online account management, and easy access.
3. Certificate of Deposit (CD)
Another extremely low-risk investment option is a Certificate of Deposit. You can get one through an investment broker, a credit union or your bank. CD involves depositing money for a certain duration in exchange for a guaranteed return.
Upon the expiry of your deposit term, you can get back your principal investment plus interest. The length of a CD and the current interest rates at the time of buying a CD determine the amount of interest you earn.
4. Dividend Rich Stocks and ETFs
Other low risk investment options include stocks that pay out generous dividends. If it comes to choosing between two equally performing stocks, go with the one that pays higher dividends. However, your investment could take a beating if a company falters.
To hedge your risks, invest through a dividend stock mutual fund that targets stocks with consistently high dividends. Mutual funds companies diversify their clients’ investments to mitigate potential risks. Recently, they have also included cryptocurrency investments in their portfolios. They use the best crypto platform Canada to minimize risks in the investments.
5. Credit Card Rewards
Ok, this might sound preposterous, but it’s ingenious if you come to think about it. You earn points (translatable into real cash) with a cash back credit card. The “rewards” you earn with a cash back credit card could be higher than what you get with an online savings account or a Certificate of Deposit.
Let’s say you have spent $4,000 on your card in three months. This amount could earn you at least 50,000 points or $500 in cash back or gift cards. You can then use the $500 on utilities, groceries, etc. This is the closest you will get to ‘free’ money.
6. Money Market Funds
Money marketing funds can complement your investment on the best Canadian crypto exchange. For risk-averse investors who want to safeguard their investment, a money market fund is a perfect choice. It involves paying your interest in bits to make it worthwhile for the fund to park your investment. The aim of these funds is to protect the value of your investment.
It is rare, but possible, for the NAV to go below $1. The interest from a money market fund may be low, but at least your principal investment is protected from the daily fluctuations of the markets.
7. Municipal Bonds
The government borrows by issuing a municipal bond. If you are looking to lower your exposure to taxes, these bonds are perfect since they are exempt from Federal income tax. It is, however, important to do your research to establish whether the bonds are exempt in your area. By avoiding income tax, you get a higher return on your investment. Besides, the possibility the borrower (government) will default is extremely low. You can buy bonds individually or through a mutual fund.
8. Online Checking Account
These work just like high yield savings accounts. You earn a nominal interest on your deposit. If you have money you have no plans for, depositing it an online checking account earns you better returns than parking it in your bank account.
The beautiful thing is that the majority of online checking accounts do not charge any fee to sign up. As with the high yield savings account, only deposit your funds with a bank that has a reputation for good customer service, competitive interest rates, and a user-friendly online interface.