Many investors are wary of putting their money into high-risk investments, as capital preservation remains their primary concern.
At the same time, getting good returns is also important. Over time, inflation destroys purchasing power.
In this post, we take a look at six lower-risk (although not zero risk) investments that can give you good returns and help you build wealth in the long term.
Treasury securities
Treasury bills, notes, and bonds are the very definition of low-risk investments, as they are fully backed by the federal government.
T-bills are a short-term investment option, as they typically mature in a year or less. They are sold at a discount and you will be paid the full face value of the bill upon maturity.
T-notes and T-bonds pay a fixed rate of interest (which is decided by the government) every six months. The maturity period of a T-note can be anywhere from 2 to 10 years.
The maturity period of a T-bond, on the other hand, is 30 years. Upon maturity, you will be paid the face value of the note or bond.
Money market accounts
A money market account is technically not an investment, but it can offer better returns than a traditional savings account.
Funds in these accounts, up to $250,000 per person, can be insured by FDIC if held at a bank, which makes it a virtually risk free, government-backed investment.
Corporate bonds
These are issued by high-performing companies and large corporations and they typically offer higher returns than Treasury bonds.
The downside is that they are not as secure as Treasury bonds, as they are issued by private companies. However, you can mitigate the risk to a great extent by choosing to invest in bonds that are issued by highly-rated, established companies.
Dividend-paying stocks
Investing in dividend-paying stocks can benefit you in two ways — you earn regular income through dividends and from capital appreciation if the stock’s value goes up.
While there is an element of risk associated with any kind of stock market investment (stocks can go down in value), you can reduce to a significant extent by investing in so-called “dividend aristocrats,” companies that have been around for decades and have been paying dividends consistently for many years.
Fixed annuities
These are investments that can provide you with a guaranteed source of income over a period of time. The payout is fixed, so you are assured of a sum of money regardless of how the market performs.
Depending on your needs, you can invest in an annuity which pays you for a specific period of time or until your death.
Index funds
Index funds are an excellent investment option for anyone who is looking to build long-term wealth. These funds are designed to mirror the profile of an index, such as the S&P 500.
The idea behind an index fund is that if the fund’s holdings are similar to that of an index, its performance is likely to match the index’s performance as well. They have very low operating costs and can give you strong long-term returns.
