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Building wealth does not require taking outsized risks. For investors who prioritize capital preservation and steady returns over aggressive growth, a range of low-risk options can put money to work without the volatility that comes with stocks or speculative assets. Understanding what these investments offer, and where their limits are, is a useful starting point for anyone building a portfolio from the ground up.
A financial advisor can help you build an investment strategy that matches your risk tolerance, time horizon and long-term financial goals.
What Makes an Investment Low-Risk
The most fundamental characteristic of a low-risk investment is that your original investment, your principal, is unlikely to lose significant value. Some no-risk options, like savings accounts and certificates of deposit, are backed by federal insurance that guarantees your money up to certain limits. Others, like Treasury securities, are backed by the full faith and credit of the U.S. government.
Low-risk investments tend to offer returns that are more modest but far more predictable than their higher-risk counterparts. You generally know what to expect going in, whether it’s a fixed interest rate on a CD or a steady dividend from a bond fund. This predictability makes them easier to plan around, which is particularly valuable for beginners who are still learning how markets behave.
Volatility refers to how much an investment’s value fluctuates over time, and low-risk investments are defined in large part by their ability to minimize those swings. While the stock market might gain or lose 20% or more in a given year, a low-risk investment typically moves very little in either direction. This steadiness can be especially important for money you might need in the near term or for investors who are just building their comfort with the markets.
7 Low-Risk Investments to Help You Get Started
Whether you’re building an emergency fund, saving toward a near-term goal, or simply looking for a stable foundation beneath a broader portfolio, these seven options can offer a range of ways to earn a return without taking on significant risk.
1. Certificates of Deposit (CDs)
A certificate of deposit (CD) is one of the simplest and most accessible low-risk investments available, making it a natural starting point for beginners. When you purchase a CD, you’re essentially lending money to a bank for a fixed period of time in exchange for a guaranteed interest rate. Once the term is up, you get your original deposit back along with the interest you’ve earned.
The biggest advantage of CDs is the certainty they provide. Your interest rate is locked in from day one. You’ll know exactly how much your investment will earn regardless of what happens in the broader market. This makes CDs an excellent option for saving for a future purchase or a short-term financial goal.
Opportunity: CDs are insured by the FDIC up to $250,000 per depositor, and rates tend to be more competitive than standard savings accounts. Laddering multiple CDs with staggered maturity dates can provide regular access to funds while maintaining consistent interest income over time.
Risk: Withdrawing money before the CD matures typically triggers an early withdrawal penalty that can eat into your earnings. When your term ends, prevailing interest rates may also be lower than what you originally locked in, reducing what you earn on reinvested funds.
2. Money Market Funds
Money market funds are a type of mutual fund. They invest in short-term, high-quality debt instruments like Treasury bills, commercial paper and certificates of deposit. They’re designed to provide a safe place to park your cash while earning a modest return. They’ve long been a go-to option for investors who want something more productive than a savings account without much risk.
Money market funds often offer higher yields than traditional savings accounts, particularly in rising interest rate environments. Because they invest in a diversified mix of short-term securities, they spread risk across multiple issuers rather than concentrating it in a single institution.
Opportunity: When interest rates rise, money market funds tend to benefit quickly, as their short-term holdings reprice rapidly and yields can climb to attractive levels within weeks. For investors sitting on idle cash between larger investment decisions, these funds can serve as a productive holding pen that keeps pace with inflation without locking up capital.
Risk: Despite their reputation for stability, money market funds are not risk-free. They are not FDIC-insured, and while rare, it is possible for a fund to “break the buck,” meaning its net asset value falls below $1 per share, as happened during the 2008 financial crisis. In periods of market stress, funds can also face redemption pressures that force managers to sell holdings at unfavorable prices.
3. U.S. Treasury Bonds
The federal government issues U.S. Treasury bonds to fund its operations and obligations. When you buy a Treasury bond, you’re lending money to the U.S. government in exchange for regular interest payments and the return of your principal when the bond matures. Investors consider treasuries one of the safest investments because of the full faith and credit backing of the United States. Always a popular cornerstone of conservative portfolios for beginners and experienced investors alike.
The primary appeal of Treasury bonds is their unmatched safety. Because they’re backed by the U.S. government, the risk of default is essentially zero, which makes them one of the most reliable income-producing investments available. The interest you earn is also exempt from state and local income taxes, which can be a meaningful benefit depending on the tax rate where you live.
Opportunity: Treasury bonds can anchor a portfolio during periods of economic uncertainty, as investors tend to flock to them when stocks falter, often pushing their prices up. Longer-dated Treasuries in particular can lock in favorable yields for decades, which becomes especially valuable if interest rates fall after you purchase, since your fixed payments become worth more relative to new bonds entering the market.
Risk: The greatest threat to Treasury bond investors is inflation. If prices rise faster than your bond’s interest rate, your real purchasing power erodes over time even though your nominal payments remain steady. Rising interest rates also reduce the market value of existing bonds, so investors who need to sell before maturity could receive less than they paid.
4. Treasury-Inflation-Protected Securities (TIPS)
Inflation is one of the quietest threats to any investment portfolio, it gradually erodes the purchasing power of your money even when your account balance appears to be growing. Treasury Inflation-Protected Securities, commonly known as TIPS, address this risk. Backed by the U.S. government like standard Treasury bonds, TIPS come with a built-in mechanism that adjusts your investment’s value in response to inflation.
The most compelling benefit of TIPS is the inflation protection that no other Treasury security offers in quite the same way. In periods of rising prices, TIPS holders see both their principal and their interest income grow, which means the investment maintains its real purchasing power over time.
Opportunity: TIPS shine brightest during sustained inflationary periods, making them particularly valuable as a long-term hedge within a diversified portfolio. Because their principal adjusts upward with the Consumer Price Index, investors also benefit from a compounding effect over time, with interest calculated on an ever-growing base.
Risk: TIPS can underperform in low-inflation or deflationary environments, where their yields may trail those of conventional Treasury bonds by a meaningful margin. They also carry tax complexity, as the annual inflation adjustments to principal are treated as taxable income even though investors do not receive that money until the bond matures, a feature sometimes called “phantom income.”
5. Dividend-Paying Stock Funds
Dividend-paying stock funds offer a way to dip your toes into the stock market while still prioritizing stability and income. These funds invest in a diversified portfolio of companies that regularly distribute a portion of their profits to shareholders in the form of dividends. While they carry more risk than the other investments on this list, they also provide something the others can’t, the potential for meaningful long-term growth alongside a steady stream of income.
Opportunity: Companies that pay consistent dividends tend to be mature, well-established businesses with reliable cash flows, which can make these funds less volatile than broader equity funds. Reinvesting dividends over time compounds returns significantly, and in retirement or other income-focused scenarios, the regular payouts can function almost like a paycheck without requiring investors to sell shares.
Risk: Unlike the other options on this list, dividend-paying stock funds are subject to the full range of stock market volatility. Dividends are never guaranteed; companies can cut or suspend them during downturns, as many did during the 2008 financial crisis and the early months of the COVID-19 pandemic. Investors who need stable, predictable income may find that relying on dividends introduces more uncertainty than they anticipated.
6. Fixed Annuities
A fixed annuity is an insurance product that provides a guaranteed interest rate on your money for a set period of time, functioning somewhat like a CD but with a few important differences. You make either a lump-sum payment or a series of payments to an insurance company, and in return the insurer guarantees a fixed rate of return on your investment.
For beginners who value predictability and are looking for a safe place to grow their money, particularly with retirement in mind, fixed annuities offer a straightforward and low-risk option.
Opportunity: Fixed annuities lock in a guaranteed rate for years at a time, which is especially valuable when interest rates are declining and other safe options are paying less. Growth is also tax-deferred, so your money compounds without an annual tax drag until you start making withdrawals.
Risk: Your money is not easily accessible. Early withdrawals typically come with surrender charges that can eat into your returns, and unlike bank deposits, fixed annuities carry no federal insurance guarantee. If the issuing insurance company runs into financial trouble, your principal could be at risk.
7. Treasury Bills (T-Bills)
Treasury bills are short-term government securities that offer one of the simplest and safest ways to invest your money. Unlike Treasury bonds, which tie up your funds for decades, T-bills mature in one year or less, making them an appealing option for beginners who want safety and liquidity without a long-term commitment. They’re backed by the full faith and credit of the U.S. government, which means the risk of losing your principal is virtually nonexistent.
Opportunity: Because T-bills are government-backed and highly liquid, they’re one of the few investments where you can chase yield without taking on meaningful risk. When rates are high, they can be a genuinely competitive place to park cash.
Risk: Their safety comes at a cost. T-bill yields rarely outpace inflation over time, so relying on them too heavily means your purchasing power can quietly erode. They also lock in a rate at purchase, so if rates rise after you buy, you’re stuck waiting until maturity to reinvest at the better rate.
Bottom Line
Low-risk investments offer beginners a practical way to start growing their money without exposing themselves to the kind of volatility that keeps many people from investing in the first place. From the guaranteed returns of CDs and fixed annuities to the government-backed security of Treasury bonds, TIPS and T-bills, each option on this list provides a different balance of safety, liquidity and return potential.
Dividend-paying stock funds and money market funds round out the mix by offering slightly more growth or flexibility while still keeping risk in check. And while these investments are often associated with newer investors, their value extends well beyond the beginner stage.
“Low-risk investments are a great starting point for beginners. They also play a critical and necessary role in portfolios for all investors, since they balance out the risk of high-growth-potential assets, like stocks and real estate,” said Tanza Loudenback, CFP®.
Investment Planning Tips
- A financial advisor can help you determine which low-risk investments belong in your portfolio and how to balance them against higher-growth assets as your goals change. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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.
- If you want to diversify your portfolio, here’s a roundup of 13 investments to consider.
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