It makes sense to diversify your holdings by keeping a percentage of your portfolio in secure investments. You’ll profit from the steadiness offered by keeping safe, highly liquid financial assets when market volatility soars.
The characteristics of safe investments are little price fluctuation and little possibility of losing your initial investment. It is preferable that they often offer lesser returns than riskier assets. When they wish to secure their wealth, investors choose for safe investments.
The Best Safe Investments of April 2023
Treasury Bills, Notes and Bonds
- Safety: High
- Liquidity: High
Considered to be among the world’s safest investments, U.S. Treasury securities. This is due to the fact that they have the full support of the US administration.
Fixed terms and fixed interest rates are offered by government bonds. T-bills, or Treasury Bills, have maturities of four, eight, thirteen, twenty-six, and fifty-two weeks. Two and ten year maturities are available for Treasury notes. 20 to 30 years are the maturities of Government bonds.
The largest and most liquid market is that for Treasury bills, notes, and bonds. This means that if you need to cash out before the Treasury securities’ full maturity date, selling them won’t be a problem.
Money Market Mutual Funds
- Safety: High
- Liquidity: High
Money market mutual funds are a well-liked option for short-term cash management needs since they are extremely safe and liquid. They keep high-quality short-term debt securities, like Treasury bills, commercial paper, and certificates of deposit, in their possession (CDs).
Money market mutual funds have very high liquidity and cheap fees, but they also have lower returns than the majority of other mutual fund kinds. When market experts refer to “placing money into cash,” they often mean investing it in money market mutual funds.
Money market funds, like any mutual fund, cannot guarantee returns or principle preservation, but their strict requirements enable them to do so more effectively than other investments.
Treasury Inflation-Protected Securities (TIPS)
- Safety: High
- Liquidity: High
Treasury Inflation-Protected Securities (TIPS) are government bonds that do exactly what their name implies: shield your money from the effects of inflation. They are sold in terms of five, ten, or thirty years.
With TIPS, your principal’s value changes over the security’s term depending on the CPI inflation rate that is in effect at the time. Each security has a fixed interest rate, but because the principal changes in value, your interest payments will as well.
If the principal at maturity is greater than your initial investment, you keep the excess. You are given your initial investment back if the principle amount is equal to or less than the initial principal investment. TIPS pay interest on the adjusted principle every six months.
High-Yield Savings Accounts
- Safety: High
- Liquidity: High
While the aforementioned options have unrivaled liquidity, no other secure investment provides the convenience that a high-yield savings account can. The Federal Deposit Insurance Corp. insures deposits up to $250,000, making them extremely safe investments.
An account type known as a high-yield savings account often offers interest rates that are higher than those of a conventional savings account. Online banks and credit unions often provide the greatest high-yield savings accounts.
Series I Savings Bonds
- Safety: High
- Liquidity: Low
One variety of U.S. savings bond, known as “I bonds,” aims to keep up with rising prices. This indicates that they were created particularly to guard against inflation and preserve your cash worth.
Both the main value of your investment and the redemption value of your I bonds will never decrease with I bonds. Additionally, the interest received is deducted from the bond’s value twice a year, increasing the principal amount that you earn interest on every six months. They are also exempt from federal, state, and municipal income taxes.
Bonds are a fairly safe form of investment, but they are not nearly as liquid as the alternatives mentioned above. I bonds cannot be cashed out until they have been held for a year. If you sell them between one and five years after purchasing them, you will lose three months’ worth of interest in order to receive the full amount of interest owed.
Certificates of Deposit (CDs)
- Safety: High
- Liquidity: Low
Certificates of deposit offer competitive interest rates, an assurance that your money will be returned, and FDIC insurance up to $250,000 on accounts.
Although being very safe investments due to these characteristics, CDs are not thought of as having a high level of liquidity. These have periods ranging from three months to 10 years, but if the principle is withdrawn before the maturity date, there may be penalties for doing so or no interest will be paid.
When the maturity date of a CD coincides with the time horizon—that is, the period during which you anticipate needing the money—it is excellent for short-term financial goals.
Investment-Grade Corporate Bonds
- Safety: Moderate
- Liquidity: Moderate
Corporate bonds with investment-grade ratings are fixed income instruments that businesses sell to raise money for operations. Credit rating organizations, which assess the financial stability of the issuing corporations, give these fixed-income instruments excellent ratings. Investment grade companies are more likely to give you interest and your initial investment back.
Corporate bonds are less safe than the options above because businesses can and do fail. Yet, unlike stocks, businesses must still pay bonds on schedule.
If businesses experience financial difficulties, they may experience credit rating downgrades, which could cause their bonds to lose their investment grade status. Potential rewards are greater than those of the aforementioned options in exchange for these greater risks. Also taken into consideration is the market for investment-grade corporate bonds.
Which Safe Investments Do You Need?
No investment is risk-free in its entirety. Consider your level of risk tolerance and the amount of liquidity you need to determine what is ideal for you.
If stability is your ultimate aim, you can invest in any of the aforementioned possibilities in a way that practically ensures you’ll end up with a little bit more money than you started with.
