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Unsettled, volatile markets can shake your faith in risky investments like stocks. That’s why many investors move their money into safe investments when volatility strikes. More stable, lower-yielding safe investments help protect your cash—and may even provide modest growth in difficult times.
If you’re looking for safe havens from tough markets, these eight safe investments offer lower risk than stocks—not to mention peace of mind for your investments.
High-Yield Savings Accounts
High-yield savings accounts are just about the safest type of account for your money. These Federal Deposit Insurance Corporation (FDIC)-insured bank accounts are highly liquid and immune to market fluctuations. Just keep in mind, if inflation is higher than your annual percentage yield (APY), your money could lose purchasing power.
Interest rates are generally low across the board for deposit accounts—and they’ll stay that way for the foreseeable future. However, you can earn modest returns with the best savings accounts, even if they won’t always keep up with inflation.
Certificates of Deposit
If you don’t need immediate access to your cash but you’d like to earn a bit more than a savings account, certificates of deposit (CDs) are a good choice, says Kevin Matthews, a former financial advisor and the founder of investing education website Building Bread. Plus, CDs enjoy the same FDIC insurance amounts as other types of deposit accounts.
As with savings accounts, CDs are likely to see low rates for the next couple of years. While the rates can be higher on longer-term CDs, remember that they lock your money up, reducing your liquidity, and they generally charge penalties if you withdraw your cash early (usually a few months of interest). While there are no-penalty CDs, these generally come with lower yields.
Gold
Many investors consider gold to be the ultimate safe investment. Just remember, it can experience similar drastic price swings as stocks and other risky assets over the short term. Research suggests that gold may hold its value over the long term.
According to David Stein, a former fund manager and author of the investment education book “Money for the Rest of Us,” there are a few things to keep in mind with gold as a safe investment, depending on your needs.
“It can be a safe haven in that it’s protected against inflation over the long term, but it doesn’t protect you every year,” he says. “It’s a monetary asset, though, so it can help you diversify away from dollar-denominated assets, if that’s what you’re interested in.”
U.S. Treasury Bonds
U.S. Treasury bonds are widely considered the safest investments on earth. Because the United States government has never defaulted on its debt, investors see U.S. Treasuries as highly secure investment vehicles.
“Treasuries have become less attractive recently because of their low yields,” says Matthews. “However, you can get some inflation protection when you choose TIPS, which are inflation-protected Treasury bonds.”
You can buy government bonds directly from the U.S. Treasury or on secondary markets, via an online brokerage platform. Matthews cautions against the secondary market, since resellers often tack on added costs whereas you can buy U.S. Treasuries free of fees at TreasuryDirect.gov.
You can also invest in mutual funds and exchange-traded funds (ETFs) that exclusively hold U.S. Treasuries. This frees you from the complications of purchasing individual bonds and removes the hassle of reselling the on the secondary market if you need cash before the bond matures.
Series I Savings Bonds
If you want to fend off inflation as well as earn an interest rate, check out Series I bonds. These safe investments are designed to protect your money from losing value due to inflation, since the Treasury adjusts your interest rate every six months to keep pace with rising prices.
“Unfortunately, you can only invest $10,000 a year per Social Security number, although you might be able to get around it by instructing your tax return to be used to purchase I-Bonds in addition to making a separate purchase,” says Stein.
An important caveat: I Bonds earn interest for up to 30 years. You must hold them for at least a year before you can cash out. If you liquidate your I bonds before you’ve held them for at least five years, you forfeit three months of interest.
Corporate Bonds
If you want higher yields, consider corporate bonds. They generally offer more appealing interest rates but also carry more risk as few companies have the repayment record of Uncle Sam.
To ensure you’re making a safe investment, it’s important to review the rating on bonds. Matthews suggests looking at corporate bonds that are rated as investment grade, which usually means a rating of AAA, AA, A and BBB. Anything else might have even higher yields but also much greater risk.
It’s possible to purchase bonds via an online broker, but Matthews warns that many bond transactions charge higher fees than stock transactions.
To avoid fees and reduce the risk any one company defaults, look to bond mutual funds and bond ETFs, which invest in hundreds or thousands of company bonds. Most index-based ETFs and mutual funds will be available without trading fees from most brokerages these days, but it’s important to double check as well as to look out for load fees on mutual funds.
Real Estate
Real estate may be considered a safe investment, depending on local conditions. In addition, real estate may offer pretty decent income—again, depending on local market conditions.
“Whether it’s commercial property or a rental property, you’re likely to get consistent income, keeping you out of stock market ups and downs,” says Matthews.
Long-term real estate appreciation remains relatively low, with a 25-year average of about 3.8%. Real estate also comes with a variety of additional costs other safe investments lack, like maintenance fees and property taxes, and it may require a large upfront investment.
Some people may suggest investing in real estate investment trusts (REITs) in order to get exposure to real estate with greater liquidity and lower costs. But REITs are risky assets, and they can’t really be recommended as safe havens for you money in volatile markets.
Preferred Stocks
Preferred stocks are hybrid securities with features of both stocks and bonds. They offer the income potential of bonds, thanks to guaranteed dividend payments, plus the ownership stake and appreciation potential of common stock.
The potential appreciation of preferred stocks cuts both ways, however. You may see stronger increases in market value over time than bonds—as well as larger potential decreases in value when the market falls. So why are they safe investments? Because preferred stock dividends are guaranteed in nearly all cases, meaning you’ll get income no matter what the stock is doing.
“These might not be safe haven investments in the sense of market risk because capital appreciation is an issue in a down market,” Stein says. “However, you might see a degree of income protection because of the higher dividends.”
Bottom Line
There are no such things as completely risk-free investments. Even the safe investments listed above come with risks, like loss of purchasing power over time as inflation rises. The key is to consider your own individual needs and put together a portfolio that offers sufficient stability while still allowing you to take advantage of growth over time.