When it comes to investing, it's easy to think of risk and returns as being inversely related. In other words, the more risk you take on, the higher potential to increase your portfolio.
There's some truth to this. However, finding meaningful returns doesn't mean you have to gamble or expose yourself to more risk than you're comfortable with.
In fact, there are several safe investments with high returns that you can use to get the best of both worlds. If you're looking for a safe place to put your cash to work, the following ideas could be the perfect solution.
The Best Safe Investments With High Returns
One quick note before diving into some of the best safe investment ideas: you can probably find higher returns through long-term stock investing or even alternative assets than the ideas I'm covering in this article.
This is because you generally have to sacrifice some growth potential in exchange for security. However, this doesn't mean you're getting meaningless returns from safer investments; just have realistic expectations and know that you might not outperform the market with some of these ideas.
1. I Bonds
Historically, U.S. savings bonds have been a safe investment with guaranteed returns that people have used to put their extra cash to work. And with I Bonds, you can currently earn 9.62% for bonds purchases through October 2022 since I Bonds earn interest based on a fixed interest rate plus inflation-adjusted rate.
In other words, I Bonds are designed to help you invest during periods of high inflation. You can purchase up to $10,000 of electronic and $5,000 of paper I Bonds each calendar year. Interest is compounded semi-annually, and the inflation-based rate is readjusted every six months.
Bonds earn interest for 30 years. You can cash your bonds in earlier, but if you do so before five years, you lose the previous three months of interest. But even with this potential penalty, I Bonds are an incredibly safe investment with high returns that are backed by the U.S. government.
2. Certain High-Yield Savings Accounts
The average savings account barely pays interest, meaning you're actually losing value on your money to inflation. And even if you find a high-yield savings account, interest rates are often in the 1% to 1.5% range.
However, there are several mobile banks that offer extremely competitive high-yield savings accounts. This provides a safe investment with meaningful returns, and you can also access your money whenever you need it.
Some of our favorite high-yield savings accounts include:
- Aspiration: Lets you earn up to 5.00% APY on the first $10,000 with certain conditions.
- Current: Pays 4.00% APY on up to $6,000.
- Varo: Pays up to 5.00% on the first $5,000 with certain conditions.
- Wealthfront Cash Account: This popular robo-advisor has a cash account that pays 2.55% APY and has no fees.
If you have over $10,000, you might have to spread out the money between a few high-yield savings accounts to maximize your interest. But this is an excellent, safe strategy for your emergency fund or some extra cash you don't want to invest quite yet.
3. Municipal & Corporate Bonds
Another classic safe investment that can offer high returns are municipal and corporate bonds. Bonds are a popular fixed-income strategy, and they're popular for more conservative investors willing to sacrifice some growth for safe returns.
Here's the main difference between corporate and municipal bonds:
- Corporate Bonds: This is a debt security issued by a firm to investors to raise capital for various projects, like business development. In exchange, investors receive interest payments at a fixed or variable rate until the bond reaches maturity. The entity backing the bond is a corporation, hence the name corporate bond.
- Municipal Bonds: These bonds are issued by a state or municipality to help fund various projects. Like corporate bonds, bondholders receive interest payments until the bond reaches maturity, and it's the local government that backs these bonds.
Corporate bonds are generally riskier than municipal bonds since a corporation can go out of business whereas governments tend to be more stable. Right now, many municipal bonds have yields around 2.3% to 3.5% depending on the time to maturation. Corporate bonds can pay slightly more because of the added risk.
This isn't a “high return” when you compare bonds to growth stocks. But you're trading returns for extra safety, and both types of bonds are lower-risk investments.
4. Worthy Bonds
If you like a security of bonds but want higher returns, Worthy Bonds could be the solution you're looking for. This company currently pays a 5% interest rate, and its bonds start at just $10. Plus, there aren't any account fees or transaction fees to worry about.
Worthy can pay a higher interest rate than most bonds because these are private bonds Worthy issues to lend out money to businesses. Bonds have a 36-month term and are highly collateralized against a businesses' assets, helping to reduce risk. Worthy makes money by charging borrowers a higher interest rate and then passes 5% on to bond holders.
To reduce risk even further, a portion of investments are put into real estate, U.S. treasury securities, and certificates of deposits (CDs.) Overall, there's still some risk with Worthy Bonds, but it's significantly lower than peer-to-peer lending or debt investing. And a 5% interest rate isn't anything to scoff at.
You can read our Worthy Bond review for all the details.
5. Certain Dividend Stocks
Another relatively safe investment with higher returns are dividend stocks. Specifically, investing in companies that are part of the dividend aristocrats list can yield stable, high dividend yields and even the potential for some growth.
The S&P 500 dividends aristocrat list is a list of companies that have increased their dividend yields for the last 25 years in a row. This list includes some massive corporations like:
- Chevron Corp.
- ExxonMobil Corp.
- Johnson & Johnson.
- McDonald's Corp.
- PepsiCo Inc.
- Procter & Gamble Co.
Yields are often in the 2-4% range for these aristocrats. You can find higher dividend yields if you're willing to sacrifice growth, and sectors like energy are generally great for dividends. But even earning a 3% dividend yield from a dividend-aristocrat company is a nice return for what's probably a long-term hold.
Of course, share prices can fluctuate significantly, even for companies in the S&P 500. But one advantage of investing in dividend aristocrats is that you're investing in companies that have been able to steadily increase dividend yields. Generally, this is a sign a business is performing well and can stick around, even through tougher economic times.
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6. No-Penalty CDs
Certificates of deposits are another classic, safe investment with guaranteed returns. And with interest rates on the rise, they're a bit more appealing to investors these days than over the past few years.
This fixed-income strategy is fairly similar to bonds, so you're generally looking at 2-3% interest for your CD. Rates vary depending on term-length, how much you invest, and the type of CD. Fixed-rate CDs generally pay the highest interest rates but have penalties if you withdraw your funds before the term ends. So, for a safer investment that's more accessible, we suggest no-penalty CDs.
Like the name suggests, no-penalty CDs let you withdraw your money without paying penalties. This lets you safely earn interest without the restrictions of fixed-rate CDs. And options like CIT Bank and Ally Bank are paying 2% APY or more right now as of the date this article was written for their no-penalty CDs.
7. Money Market Accounts
A money market account provides the interest-earning capabilities of a savings account while still having some flexibility like a checking account. So, if you want a safe investment that's a good place to hold some idle cash, a money market account could be what you're looking for.
Currently, some of the best money market accounts pay 2% or more, although many are below 2% APY. This makes money-market accounts a bit less attractive than some CDs, bonds, and high-yield savings accounts. However, the ability to make withdrawals is one of the main perks.
8. Fractional Real Estate
One final safe investment that can generate high returns is to invest in fractional real estate.
Now, real estate investing isn't without risks. For example, buying a single-family rental unit and becoming a landlord can expose you to all sorts of risks, like rising interest rates or tenant difficulties. And even investing in REITs or individual real estate companies doesn't guarantee returns.
However, the rise of real estate crowdfunding companies has made it easier to create a diverse portfolio of income-generating real estate. Many platforms also have minimum investment amounts ranging from $10 to $100. This makes it easier to spread out your real estate portfolio across multiple markets and segments, like commercial and residential real estate, you can further reduce risks.Fundrise is the perfect example. This crowdfunding platform lets you invest in a variety of eREITs starting with just $10. Shareholders then receive quarterly dividends, and there's a fairly low 1% annual management fee. You can read our Fundrise review for a complete breakdown of the company.
Arrived Homes is another, newer player in the crowdfunding role. The main difference from Fundrise is that Arrived Homes lets you buy shares in individual, residential real estate starting with $100. Between the two platforms, it's possible to build a diverse real estate portfolio even without much money.
Returns aren't guaranteed in real estate. But through diversification, you can reduce risk and make real estate a safer investment with high returns.
What to Consider Before Investing
Before diving into a safe investment idea, there are a few more factors you should consider to find the right investment for your goals and risk tolerance:
- Timeframe: Are you investing for the short-term or for years down the line? Safe investments are generally best for shorter time periods since they reduce volatility. But if you're investing for the long-term, options like dividend stocks, real estate, or slightly more volatile investments might still work for your portfolio.
- Income Goals: Many safe investments typically provide fixed-income, making them a popular choice for retirement portfolios or creating additional income. But if you don't need a portfolio that only focuses on income generation, branching into stocks, ETFs, and other securities can make more sense.
- Flexibility: Some safe investments provide safety at the expense of locking-in your money. There's nothing wrong with this if you confidently know you don't need the money for a certain period of time. But if you want extra flexibility, options like no-penalty CDs and high-yield savings accounts make more sense.
Maybe you're looking for a new home for your emergency fund, or perhaps you want to build a retirement portfolio that reliably generates income. Whatever the case, there are numerous safe investments that still generate strong returns at low or virtually no risk.
For young investors, I still think there's an argument for growth-focused assets in most portfolios. However, safer investments still have their uses, especially if you're investing for the short-term.
Hopefully, one of the investing ideas in this article helps you safely put your money to work to generate the returns you're looking for.