Wednesday , 21 October 2020


Grow Your Savings Slowly But Safely – Here’s How

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Did your portfolio lose money over the past few years? Well, don’t despair as there are many low-risk investment options that can help you grow your savings slowly – but safely. Here are ten safe and low-risk investment options to consider.

1. High-yield savings accounts

  • A high-yield savings account is the safest investment you can find that still offers a modest return…
  • [It] is practically risk free since the deposit is insured by the government (up to $250,000 in the U.S.)…

2. Certificates of deposit

  • A certificate of deposit (CD) functions like a high-yield savings account… except that your money is “locked in” for a specific length of time with the bank paying you a guaranteed interest rate over the entire time period.
  • Certificates of deposit tend to be categorized based on the length of time that your money is locked in for: be it for 3, 6, 12, 18 or 24 months and, usually, the longer you are willing to keep your money in there, the higher the interest rate will be.
  • As with savings accounts, deposits into CDs are insured by the government, so they have practically no risk but if you withdraw your money early, then you may get a penalty. You will lose some of your returns and may even have to pay an additional fee..

3. Paying off debts

  • These days, interest rates globally are…close to 0% in many of the world’s biggest economies…but, unfortunately…the rates…on credit card debt…are still over 15% on average so, if you have debt that you are paying back at a high interest rate, then it makes very little sense to be putting your money in a low-yield investment for the purpose of saving. You will get a much higher return by using that money to pay off the high-interest debt.
  • [Indeed,] given that interest rates are currently so low, you may even be able to refinance your mortgage current debts at much lower rates…saving hundreds of dollars in interest payments each and every month.

4. Money market funds

  • Money market funds are mutual funds that invest in short-term debt, such as short-term bonds, treasury bills and others.
  • These types of funds offer great liquidity because you can usually withdraw your money at any time without getting any sort of penalty like you do with CDs…
  • Money market funds are sold for $1 per share, which is equal to their net asset value so, with a $1,000 investment, you would get 1,000 shares of the mutual fund. Later, you will be able to sell it again for the fixed price of $1 per share, but you get paid a percentage interest rate in the meantime…[although] the yields on money market funds are very low compared to what they used to be…

5. Treasuries (government bonds)

  • U.S. government bonds are called treasuries, and they are considered to be the safest bonds in existence.
  • Bonds are basically like loans. When you buy a bond, then you are effectively lending money to someone and collecting regular interest payments. In exchange for lending the money, you get a fixed interest payment. Then you get paid back the full principal amount of the bond when it expires…
  • Treasuries have many different term lengths, ranging from 1 month to 30 years. The longer the term length, the higher the yield, but keep in mind that the longer the duration of a bond, the higher the risk…
  • Even if the risk of the US government defaulting is extremely low, all long-term bonds carry risks. The bonds can drop significantly in value if inflation goes up or if the Federal Reserve raises interest rates…

6. Short-term bond ETFs

  • Bonds are generally considered to be much less risky than stocks…[and] one of the main factors that determine the risk of bonds is the duration. Bonds that mature after a short amount of time (such as under 1 year) are much less risky than longer-term bonds.
  • It is best to buy only “investment-grade” bonds. These are bonds sold by entities that have a very low risk of being unable to pay its debts.
  • The easiest way to make a diversified low-risk investment in bonds is to buy a short-term bond ETF…[which] holds an index or collection of different bonds.

7. Treasury inflation-protected securities

  • Treasury inflation-protected securities (TIPS) are US government bonds that are protected against inflation….[as] the values of the bonds go up along with the inflation rate.
  • The interest rate on TIPS will also be much lower than on a regular bond…[but] you are guaranteed not to lose purchasing power due to inflation.
  • If you are concerned about inflation going up in the future, then TIPS are one of the safest investments you can get…

8. Real estate

  • …Real estate is one of the safest places to invest your money for the long-term, because real estate prices have historically almost always gone up over the long-term.
  • If you have a lot of cash to invest, then buying real estate and renting it out is a good way to get regular income from your investment. You might also be able to sell the property at a higher price after a few years…

9. Gold

  • …When inflation goes up, or even just the expectation of inflation, then gold has usually gone up along with it.
  • Don’t put a big percentage of your portfolio in it, because it can also go down significantly and stay down for many years at a time. Indeed, many investors recommend having about 5-10% of a portfolio in gold to hedge against inflation.
  • Some people buy physical gold, but you can also get it through ETFs like GLD.
  • It’s important to keep in mind that gold does not produce anything and it does not pay interest. It is a speculative investment and will probably perform poorly if inflation does not go up…

10. Stocks and stock ETFs

  • If you are only holding for the short- or medium-term, then stocks and stock ETFs are incredibly risky. They can go down by 30-50%, and sometimes even more.
  • The longer you hold stocks, however, the more likely you are to make good profits.
  • In addition, you can collect regular dividend payments if you hold stocks or ETFs that pay a dividend…
  • You can reduce the volatility by investing in a balanced portfolio of 60% stocks and 40% bonds…[which] has historically been much less volatile than a 100% stock portfolio, but with almost as good returns…
Editor’s Note:  The original article by Kris Gunnars, has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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