Investing can be a lot like life in general. Sometimes, accepting large risks is the key to obtaining big rewards. But another tenet of investing is to diversify and be prudent. The truth is, it’s important to have a healthy mix of investments. That means finding a few great low-risk places to park money, in addition to the more exciting and higher risk investments.
Finding good, low-risk investments can be especially important during uncertain times. The year 2020 has been nothing but shock after shock. From extreme weather to a pandemic and a presidential election in the US, this is an era of constant change. Insulating money from some of these big shifts in the economy is a solid idea for several reasons.
One of the best low-risk investments for Americans in 2020 is also one of the simplest. High-yield savings accounts can pay up to 1 percent interest. This is far better than most standard savings accounts that are available today. Cash kept in these savings accounts is also secure. It typically doesn’t outperform the inflation rate, but it won’t lose value in absolute terms.
Government backed investments are also very secure. When buying things like savings bonds or treasury bills, investors never stand the risk of losing their principal. Savings bonds may have a fixed or mixed interest rate. They can’t be redeemed for 12 months. The interest rate on treasury bills is decided at auction. These can be held for periods of 4-52 weeks. Sometimes, the interest rate may be 0%. But investors will never lose their principal.
Playing the stock market is always more risky that a savings bond or a high-yield savings account. In the stock market, people risk losing all the money they’ve invested. However, there are some stocks that are known for being less volatile than others. Dividend stocks pay investors a portion of profits at intervals. Some dividends are paid quarterly, while others are paid annually.
Dividend stocks were traditionally one of the foundations of the so-called “widow’s portfolio.” Broadly speaking, they’re a wonderfully secure investment for people who don’t have a lot to lose, yet want to grow their money if possible. In addition to stocks, REITs are known for paying dividends.