8 Low-Risk Investments That Could Have a High Reward

A widely accepted investing principle holds that high reward generally is accompanied by high risk. However, some relatively low-risk investments offer moderate-to-high returns. Government bonds, preferred stocks, high-yield savings accounts and certificates of deposit (CDs) are some of the low-risk strategies available to those who want to minimize exposure to market volatility without sacrificing attractive returns. 

If you’re interested in building a real estate investment portfolio, a financial advisor can help you analyze and manage investments.

1. Preferred Stock

Preferred stock is a type of equity investment that has bond-like features plus the prospect of price appreciation. Companies typically issue preferred shares with a fixed dividend rate, providing preferred shareholders with a steady income stream. This distinguishes them from common shares, which may also pay dividends but at variable rates. Owners of preferred shares also get their dividends before common stockholders receive theirs. In addition, if the company goes bankrupt, preferred stockholders are in line to be paid off ahead of common shareholders. 

Preferred stock is considered less risky than common stock due to these features. It’s still subject to market fluctuations and may be impacted by the financial health of the issuing company. However, its blend of fixed income and potential for appreciation makes it a relatively low-risk investment with the potential for high rewards.

2. Money Market Funds

Money market funds pool money from multiple investors to purchase short-term, high-quality securities like Treasury bills and commercial paper. They aim to offer higher yields than traditional savings accounts while maintaining liquidity and stability. 

These funds are typically considered low-risk because they invest in short-duration, low-credit-risk instruments. Although their returns are modest when compared with some other investments, they provide a reliable option for conservative investors seeking a balance between risk and reward.

3. High-Yield Savings Accounts

High-yield savings accounts pay higher interest rates than standard savings accounts. They are typically offered by online banks, which have low overhead costs and can pass these savings on to customers through better rates. These accounts are considered low-risk investments because they are FDIC-insured up to $250,000, protecting your money even if the bank fails. While the returns may not be as high as riskier investments, the safety and steady interest earnings make high-yield savings accounts an attractive option for reliable returns.

4. Certificates of Deposit

Certificates of deposit (CDs) are popular with conservative investors seeking higher interest without venturing away from banks, credit unions, and similar financial institutions. In exchange for locking up their money for a set term, typically ranging from a few months to several years, investors can earn a fixed return higher than they would get with an on-demand deposit account. The FDIC insures up to $250,000 of principle per depositor per institution, making CDs an exceptionally safe investment. 

5. Treasury Bonds

Treasury bonds are long-term debt securities issued by the U.S. government. Washington’s backing makes a Treasury Bond one of the safest of all investments, with an extremely low risk of default. They offer semi-annual payments at a fixed rate of interest and have maturities ranging from 10 to 30 years. Treasury bonds may be well-suited to investors looking to preserve capital while earning a steady income over time. As a further enhancement, the interest earned is exempt from state and local taxes, although federal income taxes still apply. 

6. Index Funds

Index funds pool money from many people and invest it with the goal of tracking the performance of a specific market index, such as the S&P 500. Buying shares in one of these funds, which may be set up as a mutual fund or an exchange-traded fund (ETF), supplies diversification across a broad range of securities, reducing the overall investment risk. The passive management style of index funds requires little buying, selling or security analysis, which lets them charge lower fees than actively managed funds. Historically, index funds have provided consistent returns and, partly due to the low fees, may outperform actively managed funds over the long term. They may be suitable for investors seeking low-cost exposure to the stock market with reduced risk.

7. Fixed Annuities

Fixed annuities are insurance products that provide a guaranteed return on investment, making them a stable and predictable option for risk-averse investors. When purchasing a fixed annuity, the investor pays a lump sum or a series of payments in exchange for periodic payments in the future. The insurance company guarantees a fixed interest rate and the payment consists partly of interest and partly of return of some of the purchase amount. Fixed annuities can be attractive to retirement planners and others who place a high premium on reliable income.

8. Corporate Bonds

Corporate bonds are debt securities issued by companies to raise capital. These bonds provide regular interest payments and also return the investor’s principal at maturity. They typically offer higher yields than government bonds, which reflects the higher risk associated with corporate debt. The highest-quality corporate bonds, issued by financially stable companies and known as investment-grade bonds, are considered relatively low risk, however. Investors can evaluate the credit ratings of corporate bonds to gauge the level of risk and potential reward. Higher-rated bonds generally present a safer investment.

The Role of Low-Risk Investments in a Diversified Portfolio

Low-risk investments play an important role in a diversified portfolio, helping to cushion against the ups and downs of higher-risk assets like stocks. While they may not deliver the highest returns, these investments provide stability, preserve capital, and offer steady income — which can help you stay invested during market volatility.

A diversified portfolio blends stocks, bonds, and cash equivalents, so that when one type of asset underperforms, others can help offset losses. For example, when stock prices drop, fixed-income investments like bonds or CDs often hold their value or decline less dramatically. This balance reduces overall risk while preserving the potential for growth.

Here’s a simple example of how different investors might use low-risk investments in their portfolios:

A conservative investor might prioritize safety and allocate more to bonds, high-yield savings, and CDs. A moderate investor balances growth and stability, while an aggressive investor focuses more heavily on stocks, keeping only a small portion in low-risk investments to cover short-term needs or act as a buffer.

How to Choose the Right Low-Risk Investment for You

Not all low-risk investments are created equal — the best choice depends on your specific financial goals, time horizon, and tolerance for risk. To find the right option for your situation, consider these factors:

• Liquidity needs: If you’ll need access to your money soon, choose highly liquid options like high-yield savings accounts or money market funds. CDs or fixed annuities, which lock in your money for longer periods, may not be ideal if flexibility is important.
  
• Income vs. growth preference: If you’re focused on generating steady income, consider preferred stocks, fixed annuities, or bonds. If your goal is to protect principal and earn modest growth, options like index funds or Treasury bonds may suit you better.
  
• Tax situation: Some low-risk investments, such as municipal bonds or Treasury securities, offer tax advantages that can make them more attractive for investors in higher tax brackets.
  
• Investment timeline: For short-term goals (within 1–3 years), safety and liquidity are key — look to savings accounts, money market funds, or short-term CDs. For longer-term goals, you can afford to lock in funds and aim for higher returns through fixed annuities, longer-term bonds, or preferred stock.

Bottom Line

Investing in low-risk options can help you provide a balanced approach for growing your wealth while minimizing financial exposure. From the stability of government bonds and the security of FDIC-insured high-yield savings accounts to the steady income from preferred stocks and fixed annuities, these investments offer reliable returns without excessive risk.

Real Estate Investment Tips

• A financial advisor could help you create a personalized real estate investment portfolio based on your specific needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Want to know how much your portfolio could be worth in the future? SmartAsset’s free online investment return and growth calculator will give you an answer based on the current value of your investments, plans for additional contributions and anticipated average return. 

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