The idea of a risk free investment with a modest return is relaxing to the core, and understandably so. Good return on an investment options is something everyone wants, especially when they know their money is not at stake.
But let me tell you upfront- balancing risk and potential earnings is an enigma that stumps finance gurus to this day. Which investment plan has the least amount of risk and gives a high profit? Ask any veteran, and he’d swear to the possibility of risk increasing in direct proportion to the returns on an investment.
No, I’m not implying that you need to throw caution to the wind or resort to CDs, money-market accounts and the like to sleep well at night. You need to understand what is a good return on investment for you. Though it invariably accompanies the risk of volatility or under-performance, the notion of a low risk, high yield investment isn’t so much of an oxymoron if you identify your safety parameters.
For instance, if you have a long-term financial goal, such as retirement, you needn’t fret over the routine ups and downs in your balance, so long as the overall trend is upward. However, for short-term needs such as an emergency fund or personal savings, you want your money to be secure (and multiplied) till the time you tap it.
Without further ado, let’s get to the point. What’s the best investment you can make with due recognition to your situation and goals and still manage a nice yield? Investment options in USA which offer you that, may be few and far between but the great news is, they do exist. Read on for five of the best high return investment options for any risk-averse investor to consider for their portfolio
1. Peer-To-Peer Lending
Looking for the best investment to provide you a fixed income? Invest in the lives of others and earn profits through peer-to-peer lending. One of my personal favorites, this practice may be an entirely different approach to investing, but it does have the potential to generate incredible returns. Investors add money to a pool which is used to provide loans to borrowers through a reputable online service.
By bringing borrowers and lenders together, P2P lending creates an open lending environment that eliminates banks and the high rates and limitations they entail. End result? Flexible loan terms for the borrower and interest rates for an investor that are way above what even low risk mutual funds or long-term CDs can deliver.
There’s plenty of lending companies on the web already but the most recognized of the lot is Lending Club. The service is known for its reliability, ease of use and is considered one of the best investment options for beginners. With Lending Club, you invest automatically on the basis of an investment criteria or go about the process manually by browsing and picking the loans you like.
In exchange, you get rewarded for your investment. Additionally, you are provided all the necessary information to be able to choose notes that reflect your risk tolerance. Investors have even reported double-digit interest rate returns through the platform.
Though P2P lending isn’t a risk-free investment, screening your loans properly can help you earn really nice profits and broaden your investment portfolio. You can easily play safe with high interest rates to cover any risks and emerge way ahead of the traditional fixed income investments.
One more way to bring down your risk level and earn potentially higher profits is to diversify across several different loan amounts. Lending Club greatly helps you accomplish that since you can invest as little as $25 in a loan. Another P2P lending company to consider is Prosper. The site is akin to Lending Club and reports the average yearly return on a note to near as much as 16%.
2. Real Estate Investment Options
A major asset class, Real Estate has undoubtedly been one of the best investment options in USA for many years and will likely continue to be so in the future. While investing in residential real estate is a good way to diversify in the face of growing inflation and a declining stock market, one of the best assets to invest in, is a home. Another way is to purchase a rental property. Once your property is up and running with good tenants, you can harvest great gains on your investment.
Not interested in direct real estate purchases? Consider REITs. These are companies that mainly focus on acquiring properties for the purpose of generating income. They come in many varieties and specialize in a wide range of properties from apartment buildings, office buildings, retail properties, healthcare real estate, etc.
Investing in REITs is one the smartest investment options to add real estate to your portfolio. Though you don’t get the benefit of owning a real asset, REITs have advantages that make them a much better alternative to owning physical real estate. You get to be involved in a diverse project with little risk and the potential for steady returns. Better liquidity allows you to trade shares in REITs just the way you do with stocks. (I’d suggest equity REITs.)
Not only that, REITs pay dividends that are well above the ones on stocks. Lastly, you get tax advantages since REITs don’t sell properties regularly leading to low capital gains. Popular REITs include Realty Income, Simon Property Group and Welltower.
Due to the possible high income and property value appreciation, the right kind of REITs are one of the best investment options in USA. They carry tremendous potential to deliver consistent market-beating overall returns and can lead to some serious wealth over time.
3. Mutual Funds
One of the best investment options for beginners, a Mutual fund provides an easy way of gaining exposure to a variety of stocks. This is essentially a pool of money from various other investors that is used to buy a broad range of stocks and other securities. Mutual funds are set up after taking a certain strategy into consideration.
Though they come in many flavours, you can choose investing in funds that reflect your risk tolerance and expected returns. Investment can always be done over time, enabling you to build up a secure and diverse investment portfolio.
There are many advantages to mutual funds, the main one being - they require minimal time and effort on your part. A manager with a team of analysts will administer your investment and give you periodical profit. These professionals respond to fluctuations in the market and trade individual assets for the fund, based on their objective and strategy.
Ideally, you should receive a very good return on investment by giving your money to an expert. Another plus is the speed and ease with which you can invest in or cash out a mutual fund, especially in case of an online brokerage firm account.
Mutual funds charge a yearly management fee, which is a reasonable price to pay for not having to manage your investments. If you look closely, the entire concept of mutual funds is quite attractive to the regular investor and overall a safe investment choice for high yields. Not to forget, they give immense flexibility by shifting funds between an assortment of investment assets.
In a nutshell, mutual funds are stable, accumulate interest over time, and are an excellent choice for those who want a risk free investment. You might think, how can low risk mutual funds generate profits when lucrative stocks are never entirely safe? The answer lies in the very structure of these funds.
Being highly diversified across the industry they focus on, mutual funds can solve the challenges investors face while seeking a low-risk, high-reward investment. The overall return on your investment won’t undergo any major swings based on the fortune of a single company. The broad range of stocks ultimately serves as an effective risk management tool, increasing the likelihood of high yield.
4. High Rewards Checking Accounts
Wondering how these accounts made it to this list? Savings accounts generally offer a higher interest than checking accounts and money market accounts. But as an exception to the rule, rewards checking accounts aka high-yield checking accounts, frequently pay more interest than the two. Of course, you must meet certain criteria to earn that profit.
The average rate of interest, as reported by Bankrate for a high yield checking account in 2016 was 1.65%. In contrast, the highest rate for a money market account was a mere 1.11%. That is sure to bring some respite to conservative investors. Also, many of these accounts don’t charge you fees for not maintaining a minimum balance. On the flipside, they normally have caps on the sum of money that gives you the highest rate.
Since checking accounts are not controlled by Federal Regulation D, you can make unlimited monthly transactions and write as many checks as you like with a rewards checking account. But don’t go so far as to make all your transactions via check. Most of these accounts necessitate a specific number of debit card transactions every month to earn the highest interest rate.
Now, the most important thing to consider is that you can’t just leave the account dormant for your money to keep piling up till the time you need it. Since this is essentially a checking account, it must be kept active and your balance cannot exceed the maximum limit. So long as you resist the temptation to eat away at your balance, rewards checking accounts are a pretty good investment option for personal savings. A majority of them are offered at credit unions or small local banks. Can’t find one near your area? Look into Santender. There’s always the option of an online bank to open one!
5. Treasury Inflation Protected Securities (TIPS)
There are various types of bond investments provided by the US Treasury. One with the lowest risk is Treasury Inflation Protected Securities (TIPS). These bonds involve two means of growth:
- A fixed interest rate that stays constant for the length of the bond and
- Built-in protection from inflation which is guaranteed by the government.
The finest part of this provision is - your investment’s value is proportional to the inflation rate, regardless of the rate at the time you put your money in it. To give you some perspective, if you invest in a TIPS today, it would come with a paltry 0.35% rate of interest.
You may think to yourself - “What is a good return on investment when this rate is even less than that of a basic online savings account?” The idea seems pretty disenchanting until you realize that if inflation experiences growth each year for the length of the bond, your investment value too will rise along with it and lead to a much higher return.
You can purchase TIPS individually or invest in a mutual fund that in turn invests in a collection of TIPS. While the former option allows you to choose any particular TIPS you like, the latter option enables you to manage your investments easily. If you want to guard your portfolio against inflation, buy TIPS through great brokers like TD Ameritrade, Scottrade or E*TRADE.
Whether a low-risk investment make sense, depends on your tolerance, financial situation and time horizon. That is not to say you need to reconsider your return expectations. Just make sure your strategy covers all the necessary aspects involved in making a sound choice. While deciding which investment has the least amount of risk or what are the best assets to invest in, you need to consider the likelihood and magnitude of a bad outcome.
Remember, what sounds too good may not turn out to be quite the same when put to practice. Keep educating yourself about your investment options and don’t hesitate to speak with a capable financial advisor to answer any questions you may have. And always be dubious when you're promised results without any tangible facts to back them up.
Risk lies at the core of any investment that earns you a modest return. While there are many investment options in USA and worldwide, it is tricky to recognize what the best investment is without looking at your tolerance in a comprehensive and flexible way. But if you learn that you can sprout back easily, let a high growth rate take precedence over capital preservation.