Since the economy faces high inflation and the Federal Reserve raises interest to put a leash on the rising price, making investments without analyzing the market would be critical. However, you can build a strong financial portfolio by choosing safe investment options to ride out the volatility in the market. As an investor seeking high returns, it is important to evaluate both the potential absolute return and risk-adjusted return. Read on to learn more about safe investments.
Factors to consider before making an investment
Every investor should consider the cost of a safe investment during a volatile market. Whether you are a newbie in the financial sector or have already made significant investments, you must follow these tips before you invest:
Draw a personal road map of your finances
Understanding your financial condition is crucial. By taking this first step, you can confidently navigate the financial road ahead. Knowing your risk tolerance and ability to support your family during tough times will help you make informed decisions.
Understand your comfort zone in taking on risk
Investments come with specific risk options except in a few categories – making deposits at FDIC-approved banks and NCUA-insured credit unions. Investing in securities such as stocks, bonds, or mutual funds always carries a certain level of risk. However, the potential return on these assets can be quite profitable. If you are willing to invest, consider expanding your investment horizon by making long-term investments.
Make your investment portfolio diverse
It is important to include assets from various categories with upward and downward fluctuations in the market. You should ensure your investment spans across categories to prevent untimely loss.
If one stock goes down, you can channel and counteract your losses with exceptional investment returns on different asset categories. This is possible if you choose the best safe investment options across categories.
Refrain from investing heavily in the employer or individual fund
This tactic has proven exceptional in efficiently managing the financial portfolio. To avoid potential losses in a volatile market, it’s important to choose wisely when investing in stocks.
Maintain an emergency fund
Many successful investors recommend keeping a portion of your savings in case of emergencies such as unexpected job loss. However, you can consider investing the remaining amount in securities.
Rebalance your existing portfolio
As an investor, you should rebalance your portfolio to match the previous asset allocation. It will help you manage the asset categories properly and ensure the return on your investment.
Types of safe investments
Low price volatility and minimal chance of losing your capital are the two mantras of a safe investment. You can follow this list of investment types and choose what suits your financial conditions and goals.
Treasury bills, bonds, and notes
This security investment is one of the safest offered by the country’s government. The treasury securities are supported by the faith and credit line of the government. With a maturity period of 20 to 30 years, treasury bonds offer a fixed interest rate on the investment.
Money market mutual funds
If you want to handle your finances in the short term, money market mutual funds are a secure choice. This market offers low-cost, safe investments with high liquidity. Remember that the returns may be lower than other types of mutual funds.
Series I savings bonds
I bonds are a type of bond that can keep pace with rising prices. It means they are formulated to protect the investment from inflation. These bonds will hold your principal amount, and the redemption of the bonds will not reduce too. One of the top benefits of choosing this investment type is that your final return is exempt from state and local income taxes.
High-yield savings account
A high-yield savings account will offer the best interest rate than other traditional savings accounts. It is considered one of the best safe investment options for its ease of access and insurance on your deposit. Federal Deposit Insurance Corps., offers adequate insurance cover for deposits up to $250,000 in this savings account.
Treasury inflation-protected securities
TIPs, or Treasury Inflation-Protected Securities, are government bonds that safeguard your money from inflation. Your invested capital’s value may fluctuate based on the current Consumer Price Index inflation, but you will still receive the same principal amount even if the principal decreases. Interest is calculated based on the adjusted principal every six months.
Certificate of deposits
This investment option accrues adequate interest rates with a guaranteed return on your capital. The FDIC guarantees that your money is safe when invested in a certificate of deposit. By comparing interest rates, you can find the best investment options. But keep in mind that higher returns in a short amount of time come with a higher risk.