10 Best Low-Risk Investments for 2024

In times of economic uncertainty marked by high inflation and rising interest rates, many investors seek out lower-risk assets to protect their capital. This guide explores the top low-risk investments for 2024, defining risk, reasons to allocate to safer assets, methods to access them, and the risks involved.

What Constitutes A Low-Risk Investment?

Low-risk investments aim to preserve capital and provide steady returns while minimizing the chances of losing money. They exhibit stable asset values, regular income via dividends or interest payments, are issued by financially secure entities like governments and banks, and offer underlying protections against permanent loss. However, inflation poses risks by reducing the purchasing power of investment gains over time, and opportunities for high returns are relatively limited with low-risk assets.

Reasons To Seek Out Low-Risk Investments

Major motivations for capital allocation to safer investments include:

• Preserve Savings: Low-risk assets provide stable avenues to store capital and grow slowly without losses during periods of stock market turbulence.
• Generate Income: Bonds, CDs, savings instruments, and dividend stocks offer regular interest payments, ideal for those needing cash flow.
• Save for Short-Term Goals: Safer assets match better with savings time horizons under 5 years where portfolio drawdowns cannot be endured.
• Diversification: Blending low and higher-risk investments reduces overall risk while still capturing market upside. However, a trade-off investors must accept is that inflation protection and meaningful growth typically require moderately risky assets.

Best Low-Risk Investments for 2024 Ranked

Below are the top low-risk investments for 2024 with essential details about how they work and inherent risks:

1. High-Yield Savings Accounts

High-yield savings from online banks offer one of the simplest ways to earn passive income while protecting your deposit. The national average APY hovers around 2%, but the highest rates exceed 4%. All accounts are FDIC insured up to $250,000 per depositor. Shop for the best rates as introductory bonuses expire and banks compete on yields.

Risks: Savings lose purchasing power to inflation over time, and sudden Fed rate cuts lower APYs.

2. Short-Term CDs

Certificates of deposit (CDs) issued by banks guarantee returns over fixed periods up to 5 years, with penalties for early withdrawal. 1 to 3-year CDs strike a balance between rising rate potential and locking up capital. Compare financing rates across multiple issuers and target top rates above 4%.

Risks: Early withdrawal triggers surrender charges, and the rate is locked despite higher market rates.

3. Series I Savings Bonds

Series I bonds offer inflation protection tied to the CPI index with virtually no default risk given the Treasury Department backing. They also eliminate state and local tax obligations on interest accrued. However, lockup periods and purchase limits exist with a maximal annual investment of $10,000 allowed.

Risks: Surrender charges apply for cashing out before 5 years, and interest payments fall if inflation declines.

4. Treasury Securities

Treasuries like T-bills, notes, and bonds provide ultra-safe returns backed by the full faith of the U.S. government. Yields rise with duration from 4-week T-Bills to 30-Year Bonds. TIPS also adjust coupons relative to inflation measures. Target maturities under 5 years to limit exposure to rate shifts.

Risks: Inflation erodes real returns on non-TIPS issues over long durations, and bond values fall when rates rise.

5. Preferred Stocks

Preferred shares offer regular dividends like bonds but with partial equity upside tied to the issuing company. They take priority over common stocks for dividend payments and claim on assets if liquidated. Target financially secure companies and diversify across industries and risk profiles. Tax treatment of dividends is more favorable than bonds too.

Risks: Still carry exposure to underlying company fortunes, and rate sensitivity akin to bonds applies.

6. Utility Company Stocks

Shares in utility firms providing essential electricity, gas, and water services offer recession-resistant revenues combined with dividends averaging over 3%. Leading low-volatility examples include NextEra Energy (NEE), Duke Energy (DUK), Southern Company (SO), and Dominion Energy (D).

Risks: Struggle if high inflation persists despite geographic monopolies, and rising rates put pressure on financing costs.

7. Covered Call ETFs

Covered call funds hold diversified stock portfolios while simultaneously selling call options to generate additional income, boosting total returns. This dampens volatility compared to owning the stocks outright. Top choices are the Global X Nasdaq 100 Covered Call ETF (QYLD) and the Global X S&P 500 Covered Call ETF (XYLD).

Risks: Underperformance if underlying equities rally substantially, and contract expiration timing challenges.

8. Investment Grade Corporate Bonds

Highly-rated corporate bonds issued by financially secure companies offer modest yields above equivalent maturity Treasury debt. Target AA or AAA ratings and intermediate durations below 10 years. Access via low-cost bond ETFs like the iShares Intermediate Credit Bond ETF (CIU) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT).

Risks: Interest rate sensitivity leads to price declines when rates spike.

9. Robo-Advisor Portfolios

Robo-advisors like Betterment and Wealthfront construct and manage personalized ETF portfolios matching investor timelines and risk tolerance. Conservative options allocate heavily to bonds while stock exposure focuses on dividend payers and low volatility names. Automated tax-loss harvesting further optimizes returns.

Risks: Management fees can be higher than self-directed investing, and they still contain market risk via stock and bond holdings in the portfolio.

10. Fixed Indexed Annuities

Fixed indexed annuities offer guaranteed minimum returns along with capped participation in stock market upside tied to benchmarks like the S&P 500. This helps limit exposure to equities volatility over multi-year periods. Useful for retirement income but require extensive assessment of contract details and insurer financial strength.

Risks: Very long surrender charge periods. Difficult to understand fee structures.

Other Asset Classes To Consider

Some other low-risk categories investors allocate to include Money Market Funds, Gold, and Cash. Each offers protections but has inflation erosion risks over longer periods.

To Recap

Incorporating low-risk assets brings growth stability and income to portfolios while guarding against volatility. Ensure you ladder maturities for bonds and CDs, diversify across securities, and continuously reassess price valuations and market yields as interest rates shift.

Frequently Asked Questions

Below are answers to common questions around low-risk investing:

What percent of my holdings should be in low-risk assets?

Financial advisors suggest having between 40-60% of your total portfolio in safer securities depending on your risk tolerance and investment timeline.

What is the best low-risk asset for steady monthly income?

Bond ladders holding a series of highly-rated corporate bonds and CDs with staggered maturities generate regular interest payments ideal for income needs.

Where can I find the best CD rates and Treasury yields?

Online marketplaces like Bankrate and NerdWallet allow you to easily compare rates across banks and brokerages. Government sites also list real-time Treasury rates.

In another related article, Best Gold ETFs to Buy in 2024: Top Options for Investing in Gold