Low-risk investments are investments that bear very little possibility that money invested in them will be lost. A low-risk investment can be a very safe place to invest capital in times of market volatility. Examples of low-risk investment vehicles include certificates of deposit, savings accounts, United States savings bonds and blue chip stocks.
Low vs. High Risk
Some kinds of investments may carry great risk that money invested will be lost. This is often in return for the possibility of greater financial gain. Other investments can carry fewer risks. This is often in return for greater safety and less possibility of huge financial earnings. Read the article to know about finance basics for beginners
Certificates of Deposit
A certificate of deposit is money invested in an account in return for a certain agreed upon interest rate. During this time period the money cannot be accessed without financial penalties, often including the loss of interest. Many certificates of deposit (or CDs as they are popularly known) are invested in banks. A CD can be held for as little as three months or as long as five years and sometimes even longer. The federal government insures certificates of deposit. This means the United States government guarantees the principal in case the institution holding the CD fails.
Savings Accounts
Most savings accounts are with banks or other similar financial institutions such as credit unions. The investor can usually deposit any amount of money into the account that he wants. In turn the savings account earns interest on the money deposited. Money invested in a savings account can be withdrawn at any time for any reason without financial penalty. Savings accounts are considered very safe investments because the federal government insures the money in the account against loss of capital.
United States Savings Bonds
Bonds are loans to a company or municipality. The investor earns money in return for letting the company or state use the money for a given time frame. During this time period the investor cannot gain access to the value of the bond without monetary consequences. The United States government issues bonds. Treasury bonds can be purchased in increments ranging from less than a year to as long as several decades. A savings bond is very safe investment because, like CD's and savings accounts, any money invested is also backed up by the power and stability of the American government.
Blue Chip Stocks
Stocks are pieces of a company normally available for purchase by the general public. Blue chip stocks are stocks issued from highly capitalized companies with a lengthy history of solid earnings. A blue chip stock can be a stock from any industry at all. Blue chip stocks are considered low-risk investments because such stocks typically retain their long-term value. An investor faces a very low possibility that her capital will be lost.
Related Post: Advantages of Buying a Corporate Bond