When the question is about personal finance or investing, the answer becomes totally subjective. So, when you are asking the question “which investment type typically carries the least risk?” remember there is no definite answer, as different persons have different priorities.
So, in order to find the appropriate answer to the question “Which investment type typically carries the least risk?” you first need to get an idea about all the investment types that are quite close to lower risks. So, let’s start with some investment types with low risks.
Some Portfolios That Has Low Investment Risks
Here are some investment portfolios that have low investment risks. When you are searching for an investment option with less risk, you can consider any one of these at your convenience. And here you will also get the answer to “which investment type typically carries the least risk?”
1. High-Yield Savings Account
When it comes to the high-yield savings account, it generally lets you earn between 2% to 2.5% APR., and there is also no doubt that a high-yielding savings account is the least risky investment that you can make these days.
Though the earning is not so impressive, it is far better than the interest of 0.01% that you are earning from your current savings account. I know the return that you are getting here is not even close to other alternatives.
But think of the other side, you are getting a guaranteed return here, which can not be said for the other alternatives with higher returns.
2. Savings Bonds
Yes, it is true that saving bonds will let you get a bond at a discounted price to what its actual value is at its maturity.
But at the same time, it also keeps your money tied up in the bond for a really long time, such as 20 years, or even more than that. For getting a strong guaranteed return, you can purchase anyone from the different types of bonds.
But remember, here, the key is not touching the money for a really long time if you really want to realize its true benefit. Opt for this option only if you are comfortable enough to engage your money for a really long time.
3. Certificate Of Deposit (CD)
A CD or certificate of deposit is quite similar to savings bonds as here also your money will be tied up for a certain period of time. But here, the time is much shorter than the previous option.
The risk factor between a saving bond and CD totally depends on you, whether you are comfortable in not touching the amount for a certain period of time. And if you are determined to say a yes to this, then I will recommend you to go with a savings bond. It will be less risky for you than a certificate of deposit or CD.
Currently, you can get a 2.5% APR for a CD of 12 months. In case you are pretty nervous about the stock market or just trying to maximize your earning for any particular short-term goal, then it will make a great alternative for you.
4. Exchange-Traded Funds (ETF)
Though ETF or Exchange-Trade Funds do carry risks, it offers less risk than picking any individual stock in the market. It can be considered as one of the great ways for people for starting their investing journey.
Instead of one specific company, the risk is spread amongst a broad variety of different companies. You can buy an ETF, for example, SPY, which is indicative of the S&P 500. This will offer you exposure to all 500 different companies.
This also has the ability to limit your particular goal upside. But in case your ambition is only to minimize the risk or downside, it can be a great option for you.
5. Dividend Stocks
If we compare the dividend stocks with other investment types, it is much safer than others. As this will continue to pay out a quarterly dividend payment. Yes, it is true that there is no such guarantee that each quarter the dividend payment will increase, but or whether they will even continue or not.
But once a company introduces its dividends to shareholders this becomes the goal of every company. There is another great thing about dividend stocks and that is their liquidity. In case you are predicting any future turbulence, you simply can sell your ownership at any point. Just like other stocks, there is definitely a risk in dividend stocks also.
So, I will advise you to look at the performance of the company just like you normally do. You also need to pay special attention to the recent dividend growth, in case that is the only reason behind your decision.
Which Investment Type Typically Carries The Least Risk?
All the options that I have mentioned earlier do not have a dozen of risks. But it will totally depend on you which investment type typically carries the least interest. So, it will be best if you understand yourself first. Even only in your head, but you have to understand your goals properly.
For example, in case you want your 2% return and ready to put your money in for a long time, Savings Account will be perfect for you.
In case you want to open for some opportunities for greater returns, you can opt for ETF, or dividends stock will be a great way for you. But you also need to remember that these two also carry greater downside risk.
So, it is ultimately your decision to find out the answer of “which investment type typically carries the least risk?”
There is a thumb rule for every investment type and that is, invest as much as you will be able to lose. And also take some time to figure out things, do not rush into anything. Always align your action with all your emotions. When the stock is going down do not sell everything at that very point in case you have invested more in buying. This way you will always miss out on the swing backup benefits.