14 Safest Investment Ideas with Highest Return
When it comes to managing your money, it always seems like an uphill task. What are the risks involved, how can you ensure that you get the best possible returns, the extent to which you need to hedge your savings and many such questions constantly clog your brain.
On deep thinking, you might even come to the conclusion that there is nothing like safe investments. At the very behest let me clarify that it is not a doom gloom scenario but yes risk appetite is a highly relative term. What could be a hugely risky proposition for Tom might be at times a low-risk investment option for Jack?
Thus before you head towards looking for safe investments with high returns, first of all make a note of the investment target and the risk that you can afford to expose yourself to. The advantage of setting this target and acquainting oneself with the risk possibilities will entail a more realistic target and the time required to achieve your goal.
That said there are several vehicles of investment readily available today. If you go by the ads, most of them claim to be cost effective, have low-risk exposure and guarantee high returns. But how do you take a pick and choose investment instruments with the highest return irrespective of the investment climate? Well, here is a quick lowdown on the most commonly chosen options in this genres.
Types Of Safe Investments With High Rate Of Return
Modern economists suggest that instead of picking up specific stocks to invest your money in, it is always wiser to invest in the Index in totality. The return ration over the last 20-30 years is out there to prove the fact. Investing in Index Funds is not just about high returns, but also the fact that the relative safety of the investment is significantly higher in an Index Fund compared to individual stocks where the uncertainty is many fold higher.
Index Funds abound in a collection of low beta and high dividend paying stocks so in a way it is a perfect combination of safety with returns. Ultimately dividend payout is one of the key triggers for many stock buys. So this is a more direct approach to book all those aspirations yet limit your exposures to sudden volatile moves seen in specific stocks.
Reducing the volatility from a portfolio is a fundamental way to eliminate or minimize the risk proposition. An ETF or the Exchange Traded Fund provides exactly this opportunity where while you are trying to capitalize on the positives of the stock market without overtly increasing your risk exposure: Advantages of ETF Trading Portfolio
Compared to stocks, an ETF becomes a better bet to maintain the return ratio if the dispersion potential of the returns is comparatively narrow or if any possible advanced knowledge about the stock is unlikely to enhance the gains when bought in their usual stocks avatar.
This is essentially because they track the value of the underlying company, index or the commodity, and they never try to outperform the Index like in the case of Index Funds. All they do is replicate the performance. They do not beat the market but try and be the market in themselves. Also, you enjoy the same flexibility in trading them as in the case of stocks and quite unlike Mutual Funds where you need to wait for market closing and can only base a transaction on the closing rate.
Unit Investment Trusts
Unlike Mutual Funds, these are never very heavily advertised financial products. That is because every Tom, Dick or Harry out there might not be able to reap the advantage of this investment tool. But if you know how of the market is reasonably good, this could be a great tool to generate significant returns.
Their holdings range from stocks to bonds, and you could either get consistent income or see significant capital gain. So you might now ask how this is any different from Mutual Funds. The biggest is perhaps in the portfolio composition. Unlike a Mutual Fund, it is not flexible. Whatever is decided remains fixed for the entire tenure of investment. There is absolutely no change from the initial offering. In the case of bond UITs, as and when the specific bonds mature, the investor can redeem his or her share.
Another big positive for the Unit Investment Trust compared to a Mutual Fund is the significant tax advantage that it can boast of. The concept of capital gains tax is not applicable in this context, and you can only limit yourself with worrying about the capital you gain. Most brokers and investment houses offer some version of UITs to its client base to ensure better foot fall.
Certificates Of Deposits
Next in our list of safe but high return financial instruments include the Certificates of Deposits. Carrying significantly higher yields compared to treasuries, CDs come with a FDIC Insurance cover. The threshold level for each bank is $250,000 as this is the net insurance cover for every individual account holder. Any amount greater than this needs to be spread out as CDs from different banks.
In case you want to take advantage of the changing interest rate trends, you could also look at spreading out your maturity dates over a 3-5 year period in a way that not your entire money is committed at a single rate of interest and if rates are set to rise in next 2-3 years, you have the option to take advantage of that trend and make the most of your investment in terms of maximizing the return potential with the help of higher rates of interest pegged at a future date and which will even out potential loss concerns or worries about your investment stagnating at a particular rate for more than you would like.
Debt perhaps is one of the most common tools of investment for all those who want to take refuge in the relative safety of stable interest rate scenario and Govt backed tools of investment.
Bonds that have a maturity date of less than three years are considered amongst the best and safest options with a rate of return that is undisputedly amongst the best. Especially given the Feed talks of scaling down its easing program, the relative growth rate of US economy and the prospect of upmove that is expected, all together make these bonds among the most compelling buys this year to garner the highest returns.
You could also look at corporate and municipal bonds to park your money. But given the rate of default in these bonds, it is extremely important to commit money after a detailed research and proper analysis of the potential losses that might be witnessed. This careful study helps limit loss potential to a large extent.
Another hot favorite amongst bonds is the US Treasury bill, in particular. In themselves they can be a complete savings scheme. They are reliable, safe and many a times you would notice that the returns that they generate are often the benchmark of the rate of safety in the investment world. The assurance of the US Govt is a big positive in maintaining the appeal for these T-Bills across continents. They have never defaulted on these bonds and that is a big thumbs up.
Also, this addresses both your requirements on capital preservation as well as capital appreciation. These US Treasuries bring forth a steady source of income for you, and the best part is this could be amongst your best shot at preserving assets, especially in the face of rising inflationary conditions in the market.
Registered Investment Advisory
For many investors who are not very confident about managing their money effectively, this could well be one of the simplest approach geared towards effective return generation coupled with relative safety. What basically happens, in this case, is a sizeable portion of the investor’s net worth is given to a trained investment professional for proper deployment. This firm that handles the money in your absence is known as the Registered Investment Advisory.
Comprising of both Certified Financial Planners and Chartered Financial Analysts, they create a portfolio that is custom suited to the needs of the investor and the target returns he or she is expecting from the investment.
These registered investment advisors are registered with the SEC or the Securities Exchange Commission. To add to the cheer, this particular mode of investment also enjoys a degree of tax advantage as these professionals who manage your money have an in-depth knowledge of the tax liabilities and can easily work out solution that would ensure minimum tax payout on your investments.
Dividend Reinvestment Plan
DRIP or the Dividend Reinvestment Plan is an auto investment tool that enables the easy investment of the dividend checks in every quarter automatically into a single-dividend paying company. This facility is available for most large-cap companies and sometimes even a standalone option by your broker firm.
This helps you in saving commissions on every equity market investment, enables starting your investment portfolio with the bare minimum capital that you can garner and also gives you the option to buy fractional shares and even shares below the current market price.
Life Cycle Funds
This is a dynamic mode of investment with the risk profile gradually changing and becoming less risky as the age of both the investor and investment. These are the ideal option for those investors who would prefer a single holding over the long-term. They would perhaps have the greatest risk potential on day one and with time these target more on generation of income and an increase in value of the base capital. This balance is achieved by the constant addition to fixed-income assets and gradual subtraction of stock market positions.
Next comes that elusive yellow metal that has always been a hallmark of safety and high returns. Though gold’s returns have significantly slumped in the past year or so, over the long-term, they still are generating positive returns.
Cultures associate a strong safety value with gold. Also the fact it is a perfect hedge against inflation works in its favors and enhances its appeal as a key component of your investment portfolio. It is also an effective tool to cut out the equity market related volatility to a large extent.
This though a relatively safe investment bet, the rate of return is directly proportional to your judgment, sense of timing and the nose for identifying the right kind of property. You need to give a good thought and consult real estate advisors before taking a call on committing your money. Also, whenever you are making an investment, along with the return potential you need to consider the tax implication and liquidity requirement as that will in totality determine your entire return outlook. Not just in real valuation but a property can also create additional income in terms of renting out the property on a lease basis.
Learn more: How To Invest In Real Estate On A Tight Budget
This is not just a safe investment option in your older years but along with a life insurance cover, you also get the option to reinvest the cash in stocks and bonds of your choice in a way that your net income gets a boost merely by employing various means of investments simultaneously while the safety aspect is not compromised in any fashion.
Individual Retirement Account
This is yet another interesting retirement option. Considered to be the cornerstone of any retirement-specific investment portfolio, this instrument drastically reduces your capital gains tax as well as brings down all future tax implications as well. You can even pass through your IRA asset for your children or official to enjoy the compounding interest resulting from systematic investment over a point of time.
Paintings, Coins, Collectibles
However apart from financial instruments, many of your passions and hobbies can also take on the role of attractive, safe and high yielding return generating interests. These include paintings, coins and many similar antique collectibles which are worth significantly higher with the passage of time.
These can be sold or bought in auctions, exhibitions and the like for further enhancing the investments and income prospects going forward.
Thus, the various channels of investment need to be carefully monitored too work out the best possible solutions for you. While many investments have significant risk potential, risk again is a relative factor as well. Thus, first and foremost before you look out for safe investment options with high return prospects you need to understand the exact investment outlook that will suit your requirement and the extent of diversification that you are comfortable with. Ultimately this is what will help you channelize your money in the right direction.