Where to Find Low Risk, High Return Investments

The volatility of the stock market has left some people wondering about where and how to invest their funds.

Many people would like to invest, but are dissatisfied with the offered return. Others are concerned about the safety of their investments.

It can be a balancing act that requires knowledge, skill, and finesse. High rates of return usually come with a large risk. Safer investments tend to offer little - or no return, once fees have been deducted.

While it is true that no investment is without risk, there are ways to invest and get a good return.

Where to Find Low Risk, High Return Investments

There are several investment options that are low risk. In turn, they offer low returns. As the risk rises, typically so does the return.

Here is a list of investment models from relatively low to higher risk.

1. Certificates of Deposit (CDs)

Certificates of Deposit (CDs) are savings certificates with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. They are available through your bank, your credit union or even your investment broker.

CDs are generally issued by commercial banks and are insured by the FDIC up to $250,000 per individual. The investor is guaranteed to get the principal back as long as the total deposits with that lender are less than $250,000. The government guarantees that you cannot have a loss, and the financial institution gives you interest.

In return, the investor gets a set interest rate for that period regardless as to whether rates go up or down during the specified period. The funds are locked in until maturity of the specified term length. It is possible to withdraw the CD early for a penalty that is usually equal to three months’ worth of interest.

Interest earned is dependent on the length of the CD term and interest rates in the economy. Current rates are about 2%

2. Treasury Inflation Protected Securities (TIPS)

The U.S. Treasury offers several types of bond investments. The one with the lowest risk is called a Treasury Inflation Protection Security or TIPS.

Treasury inflation protected securities (TIPS) are a treasury security that is indexed for inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment because they are backed by the U.S. government and because the par value rises with inflation, as measured by the Consumer Price Index, while the interest rate remains fixed. This can be advantageous because the principle is indexed.

As an example, an investor invests in a TIPS today that only comes with a 0.35% interest rate. Compared to a CD or even basic online savings account, this doesn’t seem very enticing. However, if inflation grows a 2% per year for the length of the bond, then the investment value increases with that inflation, and gives a much higher return on investment.

Other advantages are that the Interest on TIPS is paid semiannually.

TIPS can be purchased directly from the government through the TreasuryDirect system, in $100 increments with a minimum investment of $100, and are available with 5-, 10-, and 30-year maturities.

3. Gold

Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk.

While gold is subject to speculation and volatility as are other markets, gold preserves wealth in an economic environment where investors are faced with a declining U.S. dollar and rising inflation. Historically, gold has served as a hedge against both of these scenarios. Much like the TIPS, with rising inflation, gold typically appreciates.

4. Money Market Funds

A money market fund is an open-ended mutual fund that invests in short-term debt securities such as T-bills; certificates of deposit (CDs); and corporate commercial paper. The fund usually pays out a little bit of interest with the main goal of maintaining a net asset value (NAV) of $1 per share. A downside of money market funds is they are not covered by federal deposit insurance.

5. Municipal Bonds

Municipal bonds (munis for short) are debt securities issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems. These bonds are exempt from federal income tax and most states and local municipalities also exempt income tax on munis for issuers in the state. Discuss this with your accountant before making any decisions.

These municipal bonds are fairly safe because the likelihood of the borrower defaulting is very low. Governments can always raise taxes or issue new debt to pay off old debt, which makes holding a municipal bond a pretty safe investment.

The average yield is tied to the tax bracket exemption. For someone in the 28% federal tax bracket, that is equivalent to a 2.5% taxable bond.

6. U.S. Savings Bonds

U.S. savings bonds are debt securities issued by the U.S. Department of the Treasury to help pay for the U.S. government's borrowing needs. U.S. savings bonds are considered one of the safest investments because they are backed by the U.S. government.

U.S. Savings Bonds come in eight specific values: $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. While these bonds do not earn much interest, they do offer a less volatile source of income. They offer a way to save for the future, as they cannot be cashed until at least six months after purchase. The time it takes for a bond to mature varies, but it is often somewhere between 15 to 30 years.

These bonds cannot be easily transferred and are non-negotiable. In order to purchase or redeem a U.S. savings bond, you must be an American citizen.

7. Annuities

An annuity is a contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. They are most commonly used to generate retirement income.

The insurance company takes a lump sum of funds from you and in return they give you a stated rate of guaranteed return. Sometimes that return is fixed (with a fixed annuity), sometimes that return is variable (with a variable annuity) and sometimes your return is dictated in part by the stock market performance with a guaranteed basic level that gives you downside protection (with an equity indexed annuity).

8. Cash Value Life Insurance

Cash-value life insurance is a type of life insurance policy that pays out upon the policyholder's death, and also accumulates value during the policyholder's lifetime. The policyholder can use the cash value as a tax-sheltered investment, as a fund from which to borrow and as a means to pay policy premiums later in life. It is also a clever way to pass some value onto heirs without either side getting hit with income tax.

9. Dividend Mutual Funds

Dividend mutual funds are stock mutual funds that primarily invest in companies that pay dividends, which are profits that companies share with stock shareholders. Dividends can be received as a source of income or they can be used to buy more shares of the mutual fund.

Return rates are often less predictable.

10. Preferred Stock

A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.

Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's assets and earnings. Second, the dividends of preferred stocks are different from and generally greater than those of common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

This is a type of stock has both an equity (stock) portion and a debt portion (bond). Preferred stock is not traded nearly as heavily as common stock, but do have less risk than the common stock. In the credit hierarchy, governing which investors get paid first during a bankruptcy, preferred stock sits between bond payments, which come first, and common stock dividends, which come last.

Return rates are often less predictable.

11. Peer to Peer Lending

Peer to Peer Lending (P2P) is a completely different type of investment. P2P is a method of debt financing that enables individuals to borrow and lend money to other individuals, entrepreneurs or businesses.

P2P lending removes the traditional financial institution from the process. It is often direct lending without an intermediary. This can involve more time, effort and risk to the investor. 

The method is not without its disadvantages as the lender has very little assurance that the borrower, who traditional financial intermediaries may have rejected due to a high likelihood of defaults, will repay their loan. 

Often the borrower has little collateral to offer apart from some equipment necessary to start a business, as in a restaurant's kitchen.

In some circles, such as Real Estate Investing it can also be referred to as Private Money. In this type of investing, the investor lends money for the purchase and/or improvement of real estate or land. The loan is secured by real property, usually in the name of the investor, until the loan and interest are fully paid. 

Typically, the investor funding a real estate project with private money can earn between 5% to 15% return on a safe and secure investment.



With the rising inflation, it is imperative that every opportunity is used to generate the highest yielding return on investment. These investment models outline the risks and benefits of the different investing options.

What is important is to begin investing at the level where the risks and returns are acceptable to the individual as soon as possible. It is the best path to financial freedom!

Knowledge is power and updated knowledge is the most powerful of all.


It takes discipline, but living within one’s means is key to accumulating wealth. Being financially responsible in the present is a good way to ensure a comfortable future.


These steps are good places to start a more conscious and directed route to achieving your financial freedom. Read, reflect and take what will work for you.

Bottom line is that there is no blanket strategy. Each person must evaluate their own circumstances, needs, and desires. Get the help you need to achieve financial freedom.

If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much.

-Jim Rohn

Above all, believe in yourself and believe that you will achieve your goal!
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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

Investopedia