Whether you’re new to markets or a seasoned pro, low-risk investments are a great option for conservative investors who want to protect their money from potential losses while still benefiting from modest growth.

It’s important to understand that while investing in low-risk assets can preserve your capital, it also limits your returns. Benefits of low-risk investing include additional diversification, and it’s especially helpful for people who are saving money for near-term financial goals like a home down payment.

1. U.S. Treasury Bills, Notes and Bonds

• Risk level: Very low.
• Potential returns: Low to moderate, depending on maturity.

U.S. Treasury securities are backed by the full faith and credit of the U.S. government. Historically, the U.S. has always paid its debts, which helps to ensure that Treasurys are the lowest-risk investments you can own.

There are a wide variety of maturities available. Treasury bills, also referred to T-bills, have maturities of four, eight, 13, 26 and 52 weeks. They are sold at a discount to their face value, and your return is the difference between the purchase price and par value at redemption.

Treasury notes come in maturities of two and ten years. Treasury bonds have long maturities of 20 to 30 years, which means they carry slightly more risk than shorter-duration Treasury securities. Both bonds and notes make interest payments every six months.

The market for U.S. Treasurys is the largest, most liquid market in the world, making them easy to sell if you need access to your cash before the maturity date.

2. Series I Savings Bonds

• Risk level: Very low
• Potential returns: Depends on the rate of inflation

I bonds are a special type of U.S. savings bond with a variable interest rate designed to keep up with inflation, as measured by the consumer price index (CPI).

They offer returns based on two interest rates: A fixed rate that remains the same for the 30-year term of the bond, plus a variable interest rate that is updated every six months to match the prevailing rate of inflation.

In addition, I bonds benefit from semiannual compounding: Earned interest is added to the value of the bond twice a year, gradually increasing the principal on which you earn interest. You must hold the bond for at least one year before cashing out, and there is a small penalty if you cash out before five years have passed.

If you live in a place with high taxes, I bonds are a good option since their interest payments are exempt from both state and local taxes.

3. Treasury Inflation-Protected Securities (TIPS)

• Risk level: Very low
• Potential returns: Depends on the rate of inflation

Treasury inflation-protected securities (TIPS) are issued by the U.S. Treasury, and like I bonds they use a special mechanism to ensure that returns keep up with the rate of inflation. TIPS offer maturities of five, 10 or 30 years.

Most bonds promise to return your original investment—the so-called principal—plus a fixed or variable amount of interest. TIPS offer a fixed rate of interest, but their principal value increases or decreases in line with the prevailing rate of inflation as measured by CPI.

At maturity, if the principal is higher than your original investment, you keep the increased amount. If the principal is equal to or lower than your principal investment, you get the original amount back. TIPS pay interest every six months, based on the adjusted principal.

4. Fixed Annuities

• Risk level: Very low
• Potential returns: Modest

Fixed annuities are a popular type of annuity contract that are frequently used for retirement planning but can also be useful for medium-term financial goals. Sold by insurance companies and financial services companies, a fixed annuity guarantees a fixed rate of return over a set period of time, regardless of market conditions.

There are two stages in the life of an annuity: the accumulation phase and the payout phase. In the first, you make a series of payments into your annuity and earn interest that grows the value of your account tax deferred. The payout phase may be either a single, lump-sum payment or a series of regular payments over time.

Although inflation can erode the value of a fixed annuity, many companies offer cost-of-living-adjustment (COLA) riders that help the value of your annuity keep up with rising prices.

5. High-Yield Savings Accounts

• Risk level: Very low
• Potential returns: The best high-yield savings accounts can offer moderate returns, depending on prevailing interest rates

High-yield savings accounts offer an unbeatable combination of a modest return on your money, unlimited liquidity—you can withdraw money whenever you wish—plus the backing of the Federal Deposit Insurance Corp. (FDIC), which insures deposits up to a set limit.

With next to no risk of losing money plus the possibility of modest returns (depending on prevailing rates), parking your emergency fund or cash you need for near-term purchases in a high-yield savings account makes a lot of sense.

The interest rates offered by high-yield savings accounts can vary widely depending on market conditions. But you’ll never lose money on your principal and earned interest.

6. Certificates of Deposit (CDs)

• Risk level: Very low
• Potential returns: The best CDs may offer returns that match or beat high-yield savings accounts

These time deposit accounts allow you to invest your money at a set rate for a fixed period of time. Withdrawing the money prior to your maturity date will trigger an early withdrawal penalty fee.

There are different types of CDs—like regular, bump-up, step-up, high-yield, jumbo, no-penalty and IRA CDs, for example—and different financial institutions will have different rules and fees. Certificates of deposit are insured by the FDIC up to statutory limits, which makes them a very low-risk investment option.

7. Money Market Mutual Funds

• Risk level: Low
• Potential returns: Modest

Money market mutual funds invest in various fixed-income securities with short maturities and very low credit risks. They tend to pay a modest amount of interest, but unlike other kinds of mutual funds there’s very little chance to make money from appreciation.

This type of investment offers plenty of liquidity, and because of the types of investments they make, they are considered to be very safe with very little risk of losing money. But unlike savings accounts or CDs, they are not backed by the FDIC.

Money market mutual funds are best used as a parking place for cash that you might want to keep easily accessible for a big purchase or another investment opportunity.

8. Investment-Grade Corporate Bonds

• Risk level: Moderate
• Potential returns: Modest to high

Corporate bonds are fixed-income securities issued by public companies. When a public company has a very good credit rating, their bonds are investment grade—also called high grade—which means the company is very likely to keep paying interest over the life of the bond and return the principal at maturity.

Credit rating agencies like Moody’s, Standard & Poor’s and Fitch assign credit ratings to companies after doing in-depth research on their finances and stability. But just because a bond is considered investment grade today is no guarantee that a company won’t get into trouble tomorrow and see their credit rating downgraded. That’s why this type of investment carries more risk than the others noted above.

9. Preferred Stocks

• Risk Level: Moderate
• Potential returns: Modest to high

Preferred stocks combine the characteristics of stocks and bonds in one security—providing investors with dependable income payments plus the potential for shares to appreciate over time.

Shares of preferred stock are issued with a set face value, and income from preferred stock gets preferential tax treatment, as qualified dividends tend to be taxed at a lower rate than bond interest.

Although common stock dividends are reduced or eliminated before preferred stock dividends, in the case of company profit loss, preferred stock dividends may also be lowered or eliminated.

10. Dividend Aristocrats

• Risk level: Moderate
• Potential returns: Moderate to High

Many public companies pay dividends, but the dividend aristocrats are special. These companies have demonstrated remarkable long-term stability and reliability in their dividend payouts.

A public company is considered to be a dividend aristocrat after having increased their annual dividend payments for a minimum of 25 years in a row. There are other qualifications—included in the S&P 500 index, have a minimum market capitalization of $3 billion—but what matters for investors is that these companies have maintained good dividend yields over the long term.

Owning shares of a public company can be more risky than other options on this list, but the dividend aristocrats can also provide you with dependable cash flow no matter what the stock market is doing—plus the chance of appreciation over time.

What is Risk?

Risk within the context of investing is the potential for your investments to lose all of their money or simply achieve lower returns than you anticipated or hoped for.

Risk tolerance is your personal comfort with uncertainty. The greater your risk tolerance, the more you’re willing to bet that an investment will pay off and the more you’re willing to lose if you bet wrong. In investing, higher risks generally mean higher rewards.

If you can’t afford to lose any money, then you must have a low risk tolerance. Even if you can afford to lose money on an investment, if your personal temperament means that you will cash out investments at a loss during times of market volatility in spite of an investment strategy designed for long-term growth, then a conservative investment strategy may be right for you.

Considerations for Low-Risk Investors

Understand Your Risk Tolerance

Although each of the investments listed above is considered low risk, there is still a sliding scale of risk associated within them.

Plopping your money into a certificate of deposit that guarantees a specific rate of return will be much lower risk than entering the world of the dividend aristocrats.

In other words, even a “low risk” investor should spend some time considering just how much “risk” they can tolerate and pick an investment accordingly.

Know Your Time Horizon

Knowing when you want to access your money—your investing time horizon—is also essential when it comes to investing.

Certain certificates of deposit charge fees for withdrawing your money before the maturity date, for example, while money that’s in a high-yield savings account is yours pretty much at the click of a button or ATM visit.

Use your plans for this money—monthly income, home down payment in five years, retirement income, etc.—to also help dictate where you decide to invest.

by Benjamin Curry