Safe Investments with High Returns
Safe Investments with High Returns
The stock market is not for everyone. Whether you are looking for investments that offer more security than volatile markets or just something that’s easy to understand and predictable there are plenty of options you can consider that make sure your money is safe while it’s working for you.
Putting it in the bank
Perhaps the most obvious option is to put the money in the bank. There are a number of high-yield savings accounts that will pay interest on your savings. It’s worth shopping around to get the best rates. Generally, online banking, which doesn’t have the overheads of bricks-and-mortar locations, will offer the highest rates.
Interest rates are at historic lows, and it’s likely that even the best offer you can find will mean the value of your investment actually goes down because the interest earned isn’t enough to counter the effects of inflation.
However, if access is important then a savings account has the benefit of being liquid. You may even be able to get to your money at an ATM, although some banks may limit withdrawals by requiring short notice periods or imposing penalties for withdrawals.
Are Certificates of deposit Safe Investments with High Returns?
Certificates of deposit, or CDs, are like putting your money in the bank. However, unlike most bank deposits CDs are for a fixed term, anything from 90 days to ten years. This means you can’t access your money, but you can get better rates of interest as a result.
Some CDs will allow early withdrawal, but usually with a penalty. And, like savings interest, rates are currently low. You can get higher rates if you are prepared to deposit for a longer period, but that comes with the risk that if inflation increases it might outstrip your interest and there would be nothing you can do about it.
US Treasury investments
About the most secure investment you can make is in the US Treasury; the government has never defaulted on a debt. The best-known investment is the US Treasury bond, but there are actually several investments you can buy that are backed by the government.
The US Treasury bond is the main treasury-backed investment. These, like other treasury-issued investments, are essentially government debt — when you buy a bond you effectively loan the government the value of that bond for thirty years. In return, the government will pay a guaranteed rate of interest every six months for the life of the bond, repaying the principal value on maturity. Treasury notes work in the same way as bonds, but with shorter maturity periods, between two and, most commonly, ten years.
Treasury Inflation-Protected Securities, or TIPS, are like bonds, but offer protection against inflation. The principal amount — its face value — is adjusted by inflation, with the interest paid on the adjusted amount. They are currently offered five, ten and 30-year maturities.
Treasury investments can be brought direct from the US Treasury or via a broker.
The Treasury isn’t the only place to issue bonds, so if the idea of a longer-term investment appeals you can also consider municipal or corporate bonds.
Municipal bonds are like Treasury bonds, but for local governments. Municipal bonds are more frequently issued to finance specific projects or infrastructure than to raise general finance. They tend to be long-term but have lower interest rates, but against this they are secure — they default less often than corporate bonds — and may have the benefit of your investment helping to improve your area or region.
There is no strict definition of corporate bonds but, in essence, they are debt instruments issued by corporations. This may be to raise revenue to finance or just for debt restructuring. They will tend to have higher rates than government bonds, but do carry a higher risk. It’s worth checking with credit-rating agencies before you invest to check the corporations rating to assess the level of risk that might be involved.
Investing on the market
Although you might view the stock market as inherently risky, there are ways that you can invest in stocks that help reduce the risk.
Lots of stocks that can be seen as low risk, not just because the company is reliable, but also because they consistently pay stock-owners healthy dividends. Standard and Poor’s maintain a list of S&P 500 Dividend Aristocrats, these are stocks that are on the S&P 500 index which have increased their dividend payment for at least the last 25 years.
Members of the club include household names like 3M, Coca-Cola, PepsiCo, AT&T, and Walmart. While any stock-market investment carries risk, these could be seen as some the least risky stocks you can purchase.
Preferred stocks are something of a chimera investment. They are a stock that you can buy and sell (and therefore make or lose money on) but they have features like a bond, so there will be a guaranteed dividend payment on them, for example.
Their hybrid nature makes them a good investment if you don’t mind some risk. There is the potential to receive the dividend for a period and then make more money if the stock has appreciated in value while you have held it. However, even if it loses value the dividend might offset, or at least minimize the loss.
There are many index funds available. While these are reliant on the overall performance of the stock market this has, historically, been a reliable investment and over the longer term has seen growth. Investing in an index fund linked to, for example, the S&P 500 or Nasdaq 100 indices, will mean that your investment will grow along with the market.
The benefit of an index fund is that it is diversified. While some stocks will fall, generally the overall market will grow. It is also a very liquid way to invest because index funds are easy to buy and sell. However, there is a risk that markets can fall, especially if you are only investing for a short term and may not be able to wait for recovery.
Money Market Funds
These, like index funds, offer another way to invest in a diversified product. While there is risk, it’s not only smaller because of the fund diversity, but also because the funds are invested in short-term interest-bearing securities, like bonds, which makes them incredibly reliable.
There are physical assets that offer a very secure way to invest.
Real estate, Safe Investments with High Returns
Buying real estate has traditionally been seen as a safe long-term investment. Property values tend to increase over time, meaning that the value of your investment generally appreciates, but can also provide a rental income during ownership.
The drawbacks of property are that the market can be volatile, so while you can be confident you can make money over ten years, the same might not be said if you needed or wanted to sell after just one year. It can also require work and ongoing investment, looking after tenants, maintaining the property and paying local taxes, for example.
Gold is a Safe Investment with High Return
Gold might seem like a strange investment in a modern world, but its relative rarity means that it retains its value as an investment. Gold has traditionally been linked to the value of national currencies and even today central banks keep large reserves of gold.
If you are looking for a long-term investment gold is one of the best you can make — it can never default. However, as a tradable commodity the value can fall as well as rise, so purchasing gold should be seen as a longer-term investment and, perhaps, only for those with already diverse portfolios or with no trust in the government or markets!
Paying off debt
Although not an investment in a traditional sense, if you have any debt then paying it off, rather than investing in something else, might be the most effective use of your money.
With interest rates so low, it’s hard, if not impossible, to find a secure investment vehicle that keeps up with inflation, let alone provides a return. And the interest you are paying on debit, even secured debt, is likely to be much higher than any investment return. While paying off a loan won’t earn you anything, you won’t have to fund the interest on it.
The best Safe Investments with High Returns
Like any investment you should always take advice. However, there are a few things you should consider before investing.
The most important is your appetite for risk and return. No investment is without risk, but some, like Treasury bonds, have as close to zero risk as you can get but with low interest rates. Or would you prefer a little more risk for a better return?
You should also consider the time required for your return. While safer investments might mean your investment is as secure as it can be, they often mean your money is tied up, so you need to be able to cope without it for however long that is.
And, finally, think about your understanding of finance. Some of these methods are straightforward, some take a little more understanding, and some can become complicated by other factors, like buying bonds on the secondary market. It’s always important to make sure you know what you are doing when you are investing, so you can be sure your decisions are good ones.
Safe Investments with High Returns, ©Sophisticated Investor 2021
About the Expert Contributor
Zanthe Alexander Bentley is a finance veteran with over 25 years’ wealth management experience advising both family offices and institutions on their corporate finance requirements including capital raises (debt & equity), restructurings and M&A activities. He has significant experience in investment management and investment banking and spent nine years at UBS focused on convertible bond arbitrage and equity derivatives.
Prior to getting involved in Asset Management he expanded a small Spanish brokerage from a handful of staff in Barcelona to a diversified brokerage company with over 150 personnel spread across 9 countries, transacting deals from High Grade to High Yield Fixed Income and Loans; Structured Products through to exchanged traded equities.
After taking time to focus on family office activities in Asia, Zanthe-Alexander now leads an ambitious zero-leveraged fund providing exceptional growth and income to Sophisticated Investors.
Safe Investments with High Returns