Top 5 Low Risk Investments to Make in 2023

Investing money can be a risky business, especially when you’re putting your hard-earned cash into high-risk investment ventures. But what about low-risk investments? It’s a smart move for those who prefer to play it safe. Low risk investments may not bring about massive profits, but they can provide small returns and, more importantly, protect your money from being lost. In this blog, we’ll be discussing the top five low-risk investments to make in 2023.

What are low risk investments?

Low-risk investments are the safer asset types you can acquire for long-term wealth accumulation. These investments exhibit minimal volatility and carry little risk of losing your initial investment, making them a secure choice.

Lower-risk investments are characterized by lower return rates, a crucial aspect of personal finance. However, it’s important to note that such investments carry the risk of potentially failing to keep pace with inflation, thereby diminishing future cash value and purchasing power.

When it comes to investments, low-risk options are ideal for short-term periods, while high-risk investments can prove more advantageous in the long run. This is because they tend to balance out when you adopt a buy-and-hold strategy.

If you’re in search of a secure spot to stash your cash and earn modest interest for a brief duration, then opting for a low-risk investment is the ideal choice for you.

5 Low Risk Investments to Make in 2023

Investors are navigating a market fraught with extreme volatility, presenting both advantages and disadvantages. Given these market dynamics, it becomes vital to diversify investment portfolios by incorporating a blend of assets with varying levels of risk. Below, we highlight some of the most promising low risk investments opportunities for the year 2023.

1. Certificates of Deposit (CDs)

Certificates of Deposit, or CDs, are the safest investment options known. They provide fixed interest rates that guarantee returns when you invest a specific amount over a fixed tenure. You can choose to invest in short-term CDs, ranging from a few days to several months, or long-term CDs, from one to five years. They’re federally insured up to $250,000, which means that if the bank goes under, you’ll still get your money back. Although the returns on CDs are limited in comparison to the stock market, CDs are an excellent option for those who want to ensure the safety of their money.

Tailor your financial goals with a wide range of options when opening a CD. Whether your preference is a short term of 28 days or a long term of 10 years, there’s something for everyone. Do keep in mind that certain banks may require a minimum deposit when you set up your account. Remember, longer maturity terms can yield higher interest rates, while shorter terms can lead to different outcomes. It’s all about finding the balance that suits you best.

Benefits

• Zero credit risk below insured limits
• Stable investment product
• Our rates may be more competitive compared to other short-term options available.

Disadvantages

• May have an early withdrawal penalty
• Inflation risk

2. Corporate Bonds

The company’s corporate bonds carry certain risks. High-grade corporate debt can offer greater returns but at the cost of higher risk factors. In comparison to savings accounts and treasury bonds, these bonds generally outperform them.

As of 2022, corporate bonds offer an annual yield of approximately 5.18% for a ten-year duration. While considered relatively secure, corporate bonds do carry some risk. It’s important to note that if interest rates rise, there is a potential rinvolved, as bondholders are locked into a predetermined rate that does not account for inflation.

Investors face a significant risk of losing their investment if the corporation or company that issued the bond becomes insolvent. Therefore, it is crucial to research the company’s history and select a highly rated and trustworthy company before making any investment decisions.

Benefits

• Stable income investment
• High yields

Disadvantages

• Lower, long-term returns
• Inflation risk
• May require a minimum purchase

3. Index Funds

If the stock market intimidates you, consider starting with index funds. They offer an excellent opportunity for the average person to build wealth over time. By investing in multiple stocks or bonds simultaneously, index funds effectively reduce your risk while enhancing the potential for higher gains. It’s a wise strategy to begin your investment journey.

These investments are designed to weather market crashes, as they possess a higher likelihood of rebounding. Their resilience stems from extensive diversification and consistent long-term performance.

Benefits of Index Funds

• Low cost
• Hands-off management
• Diversification
• Reputable track record

Disadvantages

• Heavily relies on the market
• Performance generally remains average

4. Dividend-Paying Stocks

Dividend-paying stocks offer a dependable source of passive income, making them an enticing asset. These stocks are equity securities that distribute earnings on a regular basis. Not only do they provide a steady stream of income, but they also offer promising growth potential.

Dividend-paying stocks prioritize income over price appreciation, sharing similarities with bonds in this regard. However, it’s vital to note that not all dividend stocks make smart investments. Seeking guidance from a financial advisor can prove advantageous in navigating this landscape.

Benefits

• Less volatile than growth stocks
• Passive income stream

Disadvantages

• Returns aren’t guaranteed
• Changes in dividend policy may occur.

5. High Yield Savings Accounts

High Yield Savings Accounts are a low-risk investment option that offers higher interest rates than regular savings accounts. Although they don’t provide high returns like other investments like the stock market, they’re backed by FDIC insurance which guarantees your deposits up to $250,000. You can easily access your money, and unlike CDs, there’s no fixed tenure.

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.

High-yield savings accounts are ideal for setting aside funds for vacations or emergency funds. By doing so, you can save on interest while safeguarding your principal balance from potential market drops. This ensures peace of mind when it’s time for your well-deserved vacation, without the risk of losing your hard-earned savings.

Benefits

• Higher earned interest than general savings accounts
• The fund transfer process is easy
• Liquidity

Disadvantages

• Limits monthly transactions
• May require a minimum initial deposit for the best rates
• APYs can change month-to-month due to market conditions

Things to keep in Mind while doing Investment

• During periods of economic uncertainty, opting for low-risk investments can be a prudent decision. Although their returns may be modest, they provide a higher level of security compared to volatile investment alternatives.
• Preferred stocks, high-yield savings accounts, certificates of deposit, and series I bonds are among the common low-risk investment options available. These investment vehicles offer stability and potential for reasonable returns while safeguarding your hard-earned money.
• Before selecting a low-risk investment, it is imperative to carefully evaluate your investment objectives and tolerance for risk. It is possible that they might not align with your desired outcomes for your investment portfolio, particularly if you are seeking substantial returns.

Final Words

Investing in low-risk options is perfect for those who want to protect their money without taking on significant risks. This list of the top 5 low-risk investment options can help you start your journey toward financial stability in 2023. While the returns on these investments may not be substantial, they can still offer a steady income and help give you peace of mind.

Remember, it’s important to do your research and consult a financial advisor before investing in any type of investment, to ensure that you make the best choices for your finances.