Undoubtedly, investing is one of the most effective ways to accumulate wealth. However, with rising inflation and concerns about an impending recession, many investors wonder how to select safe investments with high returns.
Whatever your age, income, or time horizon, there are numerous ways to invest, ranging from low-risk investments like money market accounts to higher-risk investments like stocks or real estate. Every investment carries a different level of risk, so knowing your risk tolerance is essential for developing a portfolio that works for you.
Whatever you decide, diversifying your portfolio with safe investments with a high return is recommended. This is where our in-depth guide to high-yield investments comes in. We have analyzed and narrowed down the best safe investments with high returns to consider. So read on!
What Is Safe Investment?
Certificates of deposit (CDs), money market accounts, municipal bonds, and Treasury Inflation-Protected Securities are safe investments (TIPS).
Is It Possible To Make A Safe Investment?
To be completely honest, no investment is completely risk-free. Because of fluctuating markets and an occasionally unpredictable economy, it’s difficult to say which single investment is the most secure. However, some investment categories are far more secure than others.
Low-risk investments have a reasonable expectation of breaking even or incurring a small loss. Higher-risk investments, on the other hand, can provide significantly higher returns. Finding low-risk, high-yield investments is a difficult task.
What You Should Think About Before Investing
Before diving into a safe investment idea, there are a few additional factors to consider to find the best investment for your goals and risk tolerance:
Time horizon: Are you investing for the short or long term? Because they reduce volatility, safe investments are generally better for shorter periods. However, if you’re looking to invest long-term, dividend stocks, real estate, or slightly more volatile investments may be suitable for your portfolio.
Income Objectives: Because many safe investments typically provide fixed income, they are popular choices for retirement portfolios or generating additional income. However, diversifying into stocks, ETFs, and other securities may make more sense if you do not require a portfolio solely focused on income generation.
Flexibility: While some safe investments provide security, they also lock in your money. There’s nothing wrong with this if you’re confident you won’t need the money for a while. However, no-penalty CDs and high-yield savings accounts make more sense if you want more flexibility.
What Are The Safe Investments With High Returns?
Here are the safe investments with high returns you can choose from:
1. High-yields Savings Accounts
Best for Short-term financial goals investors
A high-yield savings account is similar to a standard one but can pay 20-25 times the national average. As far as safe high-yield investments go, this is undoubtedly one of the safest because deposits are insured by the Federal Deposit Insurance Corporation (FDIC), which means your funds are safe even if the bank fails.
High-yield savings accounts also give you access to cash when needed, with a monthly withdrawal limit of six dollars. While high-yield savings accounts provide a higher yield than standard ones, they are insufficient to meet long-term wealth objectives. Instead, they’re best for meeting short-term savings goals, such as buying a car or putting money aside for an emergency.
2. Certificates of Deposit
Best for Risk-averse investors who require funds by a specific date in the future.
A certificate of deposit (CD) is a type of savings account that pays interest on deposits for a set period at a higher rate than a standard savings account. CDs are classified according to their term length, the amount of time the money must remain in the account before it can be withdrawn without penalty. The length of the term can vary from a few months to five or ten years.
CDs are at the lower-risk end of the spectrum, and deposits are FDIC-insured. Having said that, the rise and fall of interest rates limit your earning potential. Because your money is locked in for the term, you may miss out on increased earning potential if interest rates rise. In this case, a short-term CD makes sense so that you can reinvest with higher interest rates in the future.
3. Series I-Bonds
Best for Risk-averse investors looking for portfolio protection and stability, particularly during inflationary times.
The United States Treasury’s Series I-bonds are a low-risk savings product. They earn interest at a fixed rate for up to 30 years and are inflation-adjusted, which means that the Treasury pays an inflation rate twice a year in addition to the base interest rate. The inflation rate determines the additional rate.
Series I-bonds can be purchased for up to $10,000 annually and earn interest for up to 30 years. If you redeem the bond within one to five years, you must forfeit interest payments for the last three months.
After five years, you can cash out the bond without penalty. Series I-bonds are an appealing option for those looking to invest safely—they are among the safest investments available. They can be used to hedge against inflation.
4. Money Market Accounts
Best for Risk-averse investors who require quick access to cash
A money market account is an interest-bearing federally insured savings account. They’re nearly identical to a CD or high-yield savings account, except they allow for more withdrawal options (though you’re still limited to six withdrawals per month).
Money market accounts are ideal for low-risk investments that provide access to cash when needed. Like high-yield savings accounts, they serve as short-term savings vehicles for near-term purchases such as a car or for accumulating an emergency fund.
Best for Young investors with limited investment capital.
An ETF, an exchange-traded fund, is a stock basket that pools money from investors to purchase a collection of securities that can be bought and sold, just like individual stocks. They are ideal for young investors with a long time horizon who lack the time or experience to research individual stocks independently.
ETFs also have a low barrier to entry—you don’t need a lot of money to get started, so they’re a good place to start if you want to start investing but don’t know where to start. They also provide immediate diversification because you gain exposure to all of the companies in the index that your ETF tracks. If one company’s performance falls, it can be offset by the high performance of another, just as with S&P 500 index funds or Nasdaq-100 index funds.
6. S&P 500 Index Funds
Best for: Investors seeking a low-cost, hands-off investment that will last at least five years.
If you are looking for high-return investments, S&P 500 index funds will almost certainly outperform any savings account or government bond—at the expense of being riskier.
Investing in an S&P 500 index fund entails purchasing a basket of stocks that track the S&P 500 index. These stocks are based on the 500 largest companies in the United States, including Apple, Microsoft, and Amazon.
In contrast to an actively managed mutual fund, the goal of an index fund is to provide returns that mirror the performance of whatever index it tracks. They have the advantage of instantly diversifying your portfolio because you will own shares in a diverse range of companies.
7. Mutual Fund
Best for: Investors seeking instant diversification without having to conduct their stock research.
A mutual fund, like an index fund, allows you to invest in a wide range of stocks, bonds, and other securities. The primary distinction between the two is their goal: an index fund seeks to match the returns of a specific stock index, whereas a mutual fund seeks to outperform the market.
Mutual funds can be a good high-yield investment, but only if you find one with a track record of consistently outperforming the market.
The gains, in this case, can be enormous—but they are not guaranteed. Many actively managed mutual funds underperform the market, putting them at a higher risk than an index fund. You will lose money if you pay higher fees for a mutual fund that does not outperform the market.
8. Value Stocks
Best for: Investors who prefer more stable stock prices.
Value stocks have low share prices compared to their company’s financial performance. They are frequently regarded as a stock market bargain. You can identify value stocks by comparing a company’s performance to its share price—if a company has a track record of rising sales and profitability but the share price is relatively low, it’s likely a value stock.
While all stocks are riskier than bonds, value stocks tend to be less volatile overall. In addition, unlike growth stocks, which have earnings that grow faster than the market average, value stocks tend to perform better during periods of inflation and rising interest rates.
Value stocks can be extremely beneficial to investors still far from retirement. They’re ideal for investors who can tolerate more risk than bonds but still want their investments to be safe. Many value stocks also pay dividends, making them an excellent choice for investors seeking consistent cash flow.
9. Real Estate Investment Trusts (REITs)
Best for Real estate investors who don’t want to manage a property themselves.
Buying shares of real estate investment trusts, or REITs, is one way to capitalize on real estate without putting in the effort required to manage a property. A REIT can own various properties, such as apartment complexes, shopping centers, and residential properties, and manage them with funds provided by investors.
REIT revenue can also be used to pay dividends to investors, which often provide above-average returns—by law, 90% of the income generated must be returned to investors. REITs are an appealing option for high-yielding safe investments.
Best for: Investors who can handle high volatility in exchange for high returns.
Cryptocurrency is a catch-all term for any virtual currency that employs blockchain technology. It’s become a more popular investment in recent years, with Bitcoin being the most popular type of cryptocurrency.
Cryptocurrency investment is not for the faint of heart. Bitcoin’s price has fluctuated dramatically over the years, reaching an all-time high of $1,000 trillion in April 2021 before plummeting to $600 billion in June 2021.
Its market cap has dropped to $443 billion after reaching a new high in October 2021. All of this is to say that with high risk comes the possibility of high reward. If you can stomach the volatility of this emerging market, you could find it to be a highly profitable investment if you know what to look for.
What Are The Benefits Of Selecting A Safe Investment Option?
Many objectives can be met by carefully selecting the right investment option. Safe investment options enable you to plan for a comfortable retirement and secure your financial future. ULIPs and endowment plans take it a step further by assisting you in building wealth to meet your medium- to long-term financial objectives. Some can also help you save money on taxes by increasing your corpus.
How Do Safe Investments With High Returns Compare?
The ideal portfolio includes both low-risk and high returns. Finding the right balance always necessitates some form of compromise. Although your savings account provides relative certainty, its returns are insufficient to build wealth on their own.
Similarly, while S&P 500 fund returns are much better in the long run, it’s important to consider them in the context of the risk that you must accept — most notably, the risk of double-digit percentage losses in the short term — that insured banking products do not have.
Perhaps you’re looking for a new home for your emergency fund, or you’d like to build an income-generating retirement portfolio. In any case, numerous safe investments continue to generate high returns while posing a little risk.
It is still believed that growth-oriented assets should be included in most portfolios for young investors. On the other hand, Safer investments have their uses, especially if you’re investing for the short term. Hopefully, one of the investing ideas in this article will assist you in safely putting your money to work to generate the returns you seek.