Best Low Risk High Yield Investments

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Contributor, Benzinga
February 7, 2023

The economy continues to face high inflation and recession worries, causing challenges for investors. For a decade, very low interest rates meant that savings accounts, money market funds, and government Treasury bills paid very little. Now, interest rates are higher, making it easier to find almost-no-risk ways to save with returns that are far better than recent less-than-one-percent interest rates.

You trade off the potential for high rewards when you choose lower risk investments that promise steady returns. Holding high-yield investments without shouldering significant risk is ideal for putting the odds in your favor. 

The Best Low-Risk, High-Yield Investments

If an investor is able to pinpoint an opportunity for a low-risk, high-yield Investment, it can pay off in the long term. Below are some of the best low-risk, high-yield investments.

Dividend-paying stocks

Stocks are not risk-free investments. However, blue-chip dividend stocks are considered one of the safer stock market investment options because of the cash paid to shareholders in the form of dividends.

Dividends may be paid to shareholders on a monthly, quarterly or half-year basis, making them an attractive way to earn steady returns over a set period. Blue-chip stocks are also generally less volatile. 

Dividend-paying stocks are perceived as less risky than growth stocks and offer potential appreciation in their shares and a stable income. The investor is less dependent on the value of the company and is able to focus on building dividend income each year. 

Challenging economic conditions can cause a company to trim or remove its dividend, which poses a significant risk to its share price. Investors should choose a dividend-paying stock they feel is able to manage economic downturns and difficult periods. 

Corporate bonds

Companies issue bonds that come in different risk varieties. It is a type of debt security issued by firms to receive capital. In return, the investor is paid a number of interest payments at a fixed or variable rate. 

Investors can achieve lower risk by selecting high-quality bonds from larger, more reputable firms. Investors still face an element of risk, but bondholders are one of the first to get their money back if the company goes bankrupt.

Real estate crowdfunding 

Real estate crowdfunding uses the internet to connect investors to real estate opportunities and allow them to buy a percentage of a property. Real estate crowdfunding uses the funds of numerous investors pooled together to buy a property or lend money to developers as a loan to finance a property development. 

This type of investment requires considerable research, but returns can be notable if the right choices are made.

Real estate crowdfunding does not require a substantial amount of money to begin, and it is a great way to dip your toe in the property market, especially if you do not have the required capital to purchase a property outright.

Preferred stocks

Unlike other forms of equity, preferred stocks give shareholders a stronger claim to distributions and represent company ownership. As a result, they appeal to investors as they offer similar characteristics to bonds while still being able to fluctuate in value.

Investors can receive regular payouts and a steady income, and they are higher in the pecking order than common stockholders in the event of bankruptcy. Many investors consider preferred stocks safer than regular stocks, although slightly riskier than bonds.

Benefits of Low-Risk Investments

Investors are always looking to reduce risk and increase growth opportunities. However, risk plays a factor in investing, so looking for the lowest-risk opportunities available makes sense.

Less at stake: When using low-risk investment strategies, you are putting less at stake. Protecting losses is a big part of investment and should not only be looked at in terms of potential gains. 

Stability: Providing a steady income without significant fluctuations can be beneficial and offer stability to a portfolio. The market may not always act in your favor, but holding assets that are likely to depreciate less can help counterbalance potential losses in other areas.

Peace of mind: The predictability of low-risk investments can provide peace of mind in a down market. It is important to keep a steady head when investing, and protection against the market can do just that, despite a slightly slower growth rate.

Less volatility: Another benefit to low-risk investments is the potential to hold them over a longer time frame because of the reduced volatility. Low-risk investments are designed to be steadier than investments with higher risk-reward potential. 

Are High-Yield Investments a Sure Thing?

High-yield investments seem attractive to many investors, but they come with high risks that can dampen returns and affect investments. As the saying goes, high reward equals high risk. 

It is not always the case that high-yield investments pay off, and factors such as timing can heavily influence these trades. The market is volatile, and it’s hard to know how a position will play out over the next few years. Yields may not keep up with market expectations, and returns may be variable throughout the course of your investment. 

Lowest Risk Investments

Investments in which your principal — the money you contribute — is not at risk are usually classified as saving rather than investing. However, rising inflation has increased the interest you can earn from safe places you can put your money. For example, a U.S. government Series I Bond pays 6.89% in early February 2023. U.S. Treasury bills and bonds of varying durations pay better interest rates than they have in years. The stock market is considered to return an average of about 8% over the long term, but that return comes with a high risk of earning much less than that or of losing money.

In addition to Treasuries, savings accounts, certificates of deposit (CDs) and money market accounts offer a steady return on your money and are extremely low risk. The likelihood is that you won’t lose money in a savings account as the customer is heavily compensated in case of failure.

A savings account produces a steady return over time, and although it is considered reasonably low in yield, with some research, you can find options that pay a higher-than-average yield, especially as rates are on the rise. Thorough research will help find the highest returns and make comparisons between different accounts.

Frequently Asked Questions

Q

What is the safest high-yield investment?

A

No outright safest high-yield investment exists, and no investment comes without risk. Individuals have their favorites, but safer, lower-risk, high-yield investments include dividend-paying stocks, preferred stock or high-quality corporate bonds. 

Q

What are some low-risk types of saving?

A

Some low-risk savings vehicles include money market funds and Treasury bills and bonds. These methods of saving are considered low risk because of the frequent returns available, little volatility and reduced reliance on valuations.

About Sam Boughedda, Stock Market Analyst

He is an expert in the following spaces: stock market news writing, analysis, and research.