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The Bottom Line
The Federal Reserve has cut its key interest rate about as low as it goes: zero to 0. The banks have followed suit, and average savings accounts are paying about 0. Here are seven low-risk investments to safely grow your money.
Best Low-Risk Investments These seven investments can help boost your returns more quickly than the average savings account. Unlike bank accounts, these products are not FDIC insured—you can still lose money.
- Management Buy Out MBO Definition: Management buyout MBO is a type of acquisition where a group led by people in the current management of a company buy out majority of the shares from existing shareholders and take control of the company.
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- The Dangerous Lure of Cheap out of the Money Options
That said, you may be willing to take on a little extra risk in exchange for higher rates of return from products that still offer great liquidity and ease of access.
Treasury Notes, Treasury Bills and Treasury Bonds If you want to earn a slightly how to get 25 on an option interest rate than a savings account without a lot of additional risk, your first and best option is government bondswhich offer interest rates from 0. Bonds issued by the U. Treasury are backed by the full faith and credit of the U.
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Historically, the U. This makes government debt reliable and easier to buy and sell on secondary markets, if you need access to your cash before the debt is mature.
- Options allow for potential profit during both volatile times, and when the market is quiet or less volatile.
- Like stocks, options are financial securities.
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- By Cory Mitchell Updated Aug 30, Out-of-the-money OTM options are more cheaply priced than in-the-money ITM or in-the-money options because the OTM options require the underlying asset to move further in order for the value of the option called the premium to substantially increase.
This stability, however, means bonds may have lower yields than you might earn from bonds where the debt was less likely to be paid back, as is the case with corporate bonds. These bonds —issued by established, high-performing companies—typically offer returns that are higher than Treasuries or money market accounts.
The Dangerous Lure of Cheap Out-of-the-Money Options
As of Juneyear high-quality bonds offer average interest rates of 2. Louis Federal Reserve. While high-grade corporate bonds are relatively safe, you can still lose money investing in them if: Interest rates go up. If you need to sell your bonds, you may also have to sell them for less than you may have paid for them if overall interest rates have risen.
Best Low-Risk Investments
If you hold your bonds until maturity, you will receive back their face value plus interest. The issuer goes broke. Less highly rated companies may offer higher interest rates, but they are also more likely to lose you money.
Money Market Mutual Funds Money market mutual funds invest in overnight commercial paper and other short-duration securities. Even the best money market funds typically offer next-to-no yield. Unlike Treasury products and corporate bonds, however, money market funds do offer investors absolute liquidity: They experience virtually no volatility, and you can pull your money out at any time.
Functionally, fixed annuities work a lot like certificates of deposit : You agree to lock up your access to your money for a set period of time, and you get a higher than average interest rate in exchange. As of mid Augustfixed annuity interest rates range from about 1. Keep in mind, though, that higher interest rates often come from less well regarded insurers, meaning they are more likely to default on payment. Also remember that, like CDs, you may incur penalties if you need access to all of your money before the maturity date of your fixed annuity.
Exercising Versus Selling
You will, however, generally receive penalty-free access to a percentage of your money each month. In addition to dividends, you may see your investment grow through a buyback.
Recently many companies have been buying back preferred shares, usually at a slightly higher price than they were sold for, because preferred stocks pay higher dividends—and therefore cost companies more—than corporate debt. Common Stocks That Pay Dividends Outside of preferred stock, some common stocks are also relatively safe options for those after a higher yield in this low-interest-rate environment.
The Basics of Options Profitability
Chief among these are real estate investment trusts REITs and utility stocks, which are historically viewed as safer, less volatile, and more reliable in their dividend payments. Index Funds Individual equities, like common and preferred stocks or bonds, are not diversified.
You may only buy stock or bonds from one or two companies, making them inherently very risky. What happens if those companies go under?
An Example of How Options Work
This greatly decreases the risk you take on when you invest while still offering elevated interest or dividend rates. The Bottom Line You should always have cash reserves in a liquid savings account that you can how to get 25 on an option quickly if necessary.
But for money that you need to be somewhat liquid but hope to earn a higher return on, you do have options. Money market funds, annuities, government and high-grade corporate debt are some of the best low-risk, higher-yield ways to grow your money even when interest rates are low.