Every investor knows that low-risk investments typically yield low returns, while high-risk investments yield high returns. But investing isn’t as clear-cut as one may expect.
Contrary to common belief, there are certain investments or assets that don’t follow that general rule. Just like how there are investments with low returns yet high risks, there are also investments that pose low risks yet boast relatively high returns.
Granted, most of these investments are difficult to access, and there’s always a catch; otherwise, they’d be too good to be true. Nevertheless, investing in these assets remains the most effective way of growing money. On that note, here are four of the safest investments that boast high returns:
1. High-Yield Savings Account
If you’re looking to invest safely, you should look no further than a high-yield savings account. This is a particular type of savings account that offers an exceptional interest rate, which typically ranges from 0.50% to 2%. If you didn’t know, the average interest rate for savings accounts is 0.06%, which means a high-yield saving account offers up to 30 times the standard interest rate.
Perhaps the main difference between this type and the standard type is that there’s a limit to how many transactions you can make within a month.
Overall, while it may not be the investment with the highest returns on this list, investing in a high-yield savings account is undoubtedly the safest option out of the bunch with literally zero risks.
2. Dividend Stocks
A dividend stock is a type of stock that companies issue to investors. By investing in dividend stocks, you’re essentially investing in a company’s growth. Whenever the company grows, its earnings would naturally increase.
Depending on their earnings, the dividend you’ll receive might increase or decrease. That also means that if the earnings of the company fall short, shareholders such as yourself may not receive dividends at the end of the day.
The good news is not all dividend stocks are risky. Some are safer than others, especially if it’s a stock issued by a renowned company.
For that reason, you can play safe by investing in such companies. Since their growth is pretty much guaranteed, you’re bound to receive dividends every year. They may start out low, but they’ll increase the longer you maintain the investment.
3. Certificate Of Deposit
A certificate of deposit, also known as a CD, is a product issued by banks that guarantees profit without any risk. It’s quite similar to savings accounts in that you have to deposit money to earn money through interest rates. The interest rate for a CD is also relatively higher than the average rate in banks.
But what sets it apart from savings accounts is that you, the investor and customer, must agree to leave the deposit for a predetermined period.
For example, if you agreed to leave it be for five years, you won’t have access to that lump of money for that amount of time. Once the set period has gone by, you can withdraw the money along with the earnings from the interest rate.
You do have the option to withdraw the money prematurely, but you’ll have to pay a fee, which can reduce your earnings. Regardless, investing in a CD is risk-free, unless of course you withdraw immediately after making the deposit.
4. Fixed Annuities
A fixed annuity is a contract that promises to pay you, the investor, an amount of money that varies according to how much you’ve invested and the interest rate for that specific transaction. It’s similar to certificates of deposit in two ways:
- The more money you deposit, the more money you can earn.
- There’s a predetermined period during which you can’t withdraw the money.
The predetermined span of time is often called the surrender period, and it can be as long as 10 years or as short as three years.
What makes annuities different from certificates of deposit is that the interest rates may vary according to the surrender period. Currently, the interest rate for a seven-year surrender period is 3.25%, which is better than savings accounts by leaps and bounds.
Hence, if you currently have money to spare and you know you won’t be needing it anytime soon, it’s best to invest it in a fixed annuity and set the surrender period to as long as you want for maximum earnings. Fixed annuities are perhaps the most ideal investment for retirement plans.
People often think that low risks can only lead to low rewards, but there are special cases where even investments with low risks can yield high rewards. Be that as it may, some investors have netted a negative return from such investments, but only because they didn’t do things right.
Perhaps they withdrew the money before their investment matured, or maybe they became greedy and chose the wrong stocks. Simply put, while some of these practically have zero risks, it still requires patience to get a relatively high return from them.