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investment strategy

Safest Place to Invest Money

What is the safest way to invest money? Investors will need to select low-risk investments and also work with a trusted investment platform.

Last updated:

June 26, 2022

EarlyBird helps parents, family, and friends collectively invest in a child’s financial future. Learn more.

What You'll Learn

Investing is a powerful way to grow your wealth. And while most forms of investment involve some level of risk, there’s a big range in risk levels between different asset classes.

There are two elements to investing safely: Choosing a trustworthy brokerage (and keeping your account safe) and selecting the assets that match your comfort with risk. If you’re looking for the safest place to invest your money, investment vehicles that have historically been less volatile (read, risky) include US savings bonds, other bonds, and high-yield savings accounts.

This guide will discuss various low-risk investment options, as well as how to get started with an investment account of your own.

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Where To Invest Money Safely

The first factor is where to invest. There are hundreds of different investment platforms, brokers, and apps out there — not to mention the many financial advisors who will manage your money for you (for a fee).

Each platform will have slightly different features, investment availability, and fees. But ultimately, when it comes to keeping your money safe, all you need to do is choose a trusted broker.

Some popular and safe options include Charles Schwab, Vanguard, and Fidelity. All three of these are low-cost brokers with free stock trading and a huge variety of investment options.

Investment platforms are regulated by the Financial Industry Regulatory Authority (FINRA). If you’re unsure of the status of a broker, you can use FINRA’s BrokerCheck tool to confirm the company’s details.

The platform you choose to use might depend on what you’re hoping to invest in. For example, if you’re hoping to start investing on behalf of your children, EarlyBird is a specialized platform to do just that.

EarlyBird makes it simple for parents and loved ones to set up custodial investment accounts on behalf of their children. These accounts can be set up for children of any age and will automatically transfer to the child’s control once they reach the age of majority (18 in most states).

The Best Low-Risk Investments

Once you have an account, it’s time to start investing!

All investments have some level of risk, but risk levels vary substantially. While investments like stocks typically carry higher levels of risk, more stable investments include things like savings bonds, certificates of deposit (CDs), and more.

Safe asset classes
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One popular approach to investing focuses on balancing risk and reward. Generally speaking, riskier investments tend to offer a higher potential for return, while safer investments tend to offer lower potential returns.

For this reason, many people choose to invest in a wide variety of assets in order to build a diversified portfolio. They may have a percentage of their assets in riskier investments like stocks and a percentage in lower-risk investments like bonds.

Check out an overview of some of the safest places to invest money below.

Series I savings bonds (I-Bonds)

Series I Savings Bonds, also known as I-Bonds, are a type of savings bond that is sold directly by the US government. You can purchase them in any dollar amount, from $25 to $10,000. There is a limit of $10,000 per person per year.

I-Bonds
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When you buy an I-Bond, the principal is guaranteed by the US government. This means that you cannot lose money on an I-Bond — unless the US government defaults, which is very unlikely to happen.

Like other bonds, I-Bonds are like a loan to the government. You buy the bond upfront, and the government promises to pay you back over time — with interest. You can buy I-Bonds on the TreasuryDirect website.

The unique thing about I-Bonds is that they pay a rate of interest that is tied to the annual inflation rate. During times when inflation is high, this means that I-Bonds pay an attractive rate of interest. The interest rate changes every 6 months and is based on the current estimated inflation rate in the US.

I-Bonds can be redeemed any time after the first 12 months and up to 30 years after issue. This gives you flexibility in when you redeem your investments. Do note that if you redeem within the first 5 years, you’ll pay a small penalty (the last 3 months of interest payments).

Pros:

  • Guaranteed by the US federal government
  • Pays interest based on the inflation rate
  • Can buy as little as $25, up to $10,000

Cons:

  • Can’t redeem for the first 12 months
  • Small penalty if redeemed within 5 years
  • Interest rate changes every 6 months

High-yield savings accounts

High-yield savings accounts are a type of account that pays more interest than a typical savings account. They aren’t truly “investments” in a traditional sense, but they are still a better option than keeping funds in a checking account.

You can open a high-yield savings account with a local bank or an online bank like Discover or Capital One. These accounts usually have no monthly fee and tend to pay substantially more interest than standard checking and savings accounts and even money market funds.

Unfortunately, interest rates are still quite low at this time. You won’t earn much on your savings — but you’ll be able to access your funds at any time, and there is no risk of losing money. In fact, your funds will be FDIC insured. This means that even if the bank goes out of business, your account will be insured for up to $250,000.

Pros:

  • Quick access to money at any time
  • Simple to set up
  • Savings are FDIC insured

Cons:

  • Low-interest rates
  • Low potential for growth over time

Certificates of deposit (CDs)

Certificates of Deposit, also known as CDs, are savings vehicles offered by local banks and credit unions. They are like savings accounts that lock up your money for a certain period of time and offer you higher interest rates in return. They are extremely safe, as they are FDIC insured, just like a bank account balance.

CD certificate of deposit
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CDs are available in lengths ranging from 3 months to 5 years or more. They offer a fixed interest rate for the length of the CD.

For example, you could buy a $1,000 2-year certificate of deposit that pays 2% interest. You would purchase it for $1,000, and two years later, you would be able to redeem the $1,000 and any accrued interest.

CDs pay higher interest rates than standard checking/savings accounts, but the downside is that they lock up your funds for a period of time. If you redeem before the end of the period, you could face an early withdrawal penalty.

Pros:

  • Pays higher interest than standard checking/savings accounts
  • Available in terms ranging from 3 months to 5 years or more
  • FDIC insured

Cons:

  • Locks up your money for a period of time
  • Mediocre interest rates

Bonds & bond funds

Bonds are units of debt that are sold by either companies or governments. When a company or government wants to raise money, it can issue bonds which are then sold to investors. Bonds can be good low-risk investments that pay consistent, predictable interest.

Bonds pay a set interest rate for the life of the bond term. Terms range from a few months to 10 years or more. Bonds are sold by governments, companies, municipalities, and more.

For example, you could buy a 5-year corporate bond from XYZ, Inc for $10,000. The bond offers a 5% yield, which means you’ll earn 5% interest each year. Interest payments may be sent out yearly or, in some cases, may be added to the bond’s principal. After 5 years, XYZ, Inc will send you the original $10,000 back, plus any accrued interest.

Bonds range from safe all the way up to very risky. It all depends on the organization that is issuing the bond.

A US government bond is about as safe as it gets. These bonds are guaranteed by the US government — the only way to lose money on one is if the government defaults on all its debts. If this were to happen, we’d all have much bigger problems than a lost bond!

On the other hand, corporate bonds (issued by companies) can be riskier. There is always the possibility of a company going bankrupt or being unable (or unwilling) to pay its debts.

To minimize risk, it’s also an option to buy bond index funds. These are investment products that invest in hundreds of different bonds all at once. You can buy into a bond fund, which allows you to own small pieces of hundreds of different bonds. If any of those bonds defaults, the effect on your portfolio will be limited.

Bond funds trade like stocks, which means you can buy and sell them at any time. This is an advantage because your investments are more liquid — but it’s also a disadvantage because values can fluctuate.

With a bond fund, a market crash can lead to losses in the fund as investors sell to cash out. This means you could lose money on a bond fund. With an individual bond, the principal amount is guaranteed — which means you won’t lose money (unless the company/government defaults).

Pros:

  • Pays a consistent yield (interest)
  • Available in a range of lengths, interest rates, and risk levels
  • Typically less risky than stocks

Cons:

  • Locks your money up for a period of time
  • There is a risk of the company/government defaulting, which could lead to a total loss

Certain types of stocks

Investing in the stock market is generally considered higher risk. With that said, certain types of stocks have historically shown to be less risky than others (although there are no guarantees in the stock market).

Blue chip companies
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Certain industries have over the past decades held up better in market downturns. Companies in industries like healthcare and utilities tend to be more resistant to market downturns. This means their stock prices may decline less during market crashes and high-volatility periods than higher-risk stocks.

Specific companies with a long track record of performance and stability may also be safer options. So-called “blue chip” stocks are large, successful companies that are leaders in their industry — think Coca-Cola or Boeing. These stocks can certainly lose value at times, but the companies are very unlikely to go bankrupt or experience huge declines in their stock prices.

Of course, no matter the company you invest in, buying a stock comes with a certain level of risk — stock price could be driven down by unforeseen circumstances, like a global pandemic.

Another way to lower the risk of investing in stocks is to use broad index funds or mutual funds. These are investment products that own hundreds of different companies all in one.

For example, an S&P 500 index fund like VOO or SPY invests in the 500 largest companies in the United States. So instead of owning a single company, you can buy an index fund and own small pieces of 500 different companies. This helps diversify your portfolio and lowers the level of risk, since you’re only “exposed” a little bit per company and industry.

Real estate

Real estate is another asset class worth considering. It certainly carries risk, but there are ways you can try to hedge this risk.

For example, buying a rental property produces rental income each month. If the rent covers the mortgage, your risk as an investor will be relatively limited, even if the price of the home declines. (But that involves its own set of risks like bad tenants or a long-term vacant rental unit because of a changing community.)

Of course, one big risk associated with real estate is often overlooked: The risk of a leveraged investment. “Leveraged” means that you’re borrowing money to make an investment. When you buy a home for $500,000, you likely only put down $100,000 or less as a down payment; the other $400,000 is debt.

Leverage increases your risk. If the housing market crashes by 50%, you might be left with a home that’s worth $250,000 — but you’d still owe $400,000 on your mortgage.

There are also property-specific risks. The roof could give out, or the home could burn down. Ultimately, real estate is a relatively risky asset class. Rental properties carry somewhat less risk but can still be problematic.

Pros:

  • Can produce rental income
  • Prices move independently of other asset classes

Cons:

  • Leverage can increase your risk
  • Property-specific risks exist

Reduce Your Investment Risk With a Diversified Portfolio

Diversification is an integral tool for risk-averse investors. Diversification refers to building a portfolio with many different assets to spread out your bets.

A way to minimize risk
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Diversification can reduce the risk of your overall portfolio. To illustrate this, let’s look at a simple example:

  • If you own one stock and that company goes bankrupt, you could lose 100% of your money
  • If you own 100 stocks and one company goes bankrupt, you will only lose (at most) 1% of your money

Diversification can also help you balance the risk profile of various assets you own. You could own mostly safe investments like bonds but mix in a small amount of higher-reward assets like stocks. In this way, you can balance low-risk investments with high-reward investments, improving the rate of return for your portfolio.

Conclusion

Most investments carry some sort of risk. The safest investments tend to be things like savings bonds, high-yield savings accounts, and government bonds, although their returns are limited compared to riskier investment vehicles.

With the right knowledge, you can choose safe investments that grow slowly over time. Some of the options discussed above are a great place to start.

Looking to invest on behalf of your child? Check out EarlyBird, the platform that makes it simple for parents to open investment accounts for their children, and lets you easily choose a diversified investment mix that matches your goals and your appetite for risk.

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This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.

Author

EarlyBird Team

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INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.