The stock market goes up. Then it goes down. Then it goes up again. And then … well, you get it.
Stocks are predictably unpredictable. And yet, even the media pundits who are paid to talk us through those roller-coaster twists seem to be surprised when there’s an especially big rise or dip in the market.
It’s no wonder average investors can get a little dizzy at the top and queasy at the bottom—or that they might start thinking about moving their hard-earned money to safe investment options when things get especially scary.
But is there such a thing as a safe investment? And what are the safest investment options?
Investors typically consider some securities safer than others, but no investment has a 100% guaranteed rate of return, and there’s more than one kind of risk to consider when investing. In general, safe investments have a low risk of losing value, are easily accessible, and don’t fluctuate as much as other types of investments. However, low risk typically also means low returns, so investors often aim to create a portfolio with assets that have a range of risk profiles.
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What Is the Safest Investment?
It’s difficult to claim which investments are the safest since they’re all subject to different types of investment risk. Your personal risk tolerance as an investor also comes into play, as you may have a much higher or lower appetite for risk compared to someone else. When viewed through that lens, an investment that seems relatively safe to you might seem risky to someone else.
So what is the safest investment? You might assume that it simply means any investment that carries zero risk but that’s not necessarily a definitive answer. When constructing a portfolio, it’s important to look at the bigger picture which includes an individual investment’s risk profile as well as an investor’s risk tolerance. Risk capacity, or the amount of risk required to achieve a target rate of return, can also play a part in investing decisions.
Recommended: Build Your Confidence with the SoFi Investing 101 Center
Things to Consider Before Investing
Investors who choose products and strategies to avoid market volatility leave themselves open to a variety of risks. When researching potentially safe investments, it’s important to consider how different risk factors may affect them. Here are some of the most common types of risk you might encounter when building a diversified portfolio.
• Inflation risk. This is the risk that your purchasing power can erode over time as inflation increases.
• Interest rate risk. Fluctuating interest rates can influence returns for otherwise safe investment options such as bonds.
• Liquidity risk. Liquidity risk refers to how easy (or difficult) it is to liquidate assets for cash if needed.
• Tax risk. Task risk can influence an asset’s return, depending on how it’s taxed.
• Legislative risk. Changes to investing or tax regulations could affect an investment’s return profile.
• Global risk. Certain investments may be more sensitive to changing geopolitical events or fluctuations in foreign markets.
• Reinvestment risk. This risk refers to the possibility of not being able to replace an investment with one that has a similar rate of return.
5 Investments Known for Low Risk
Which types of investments have the lowest level of risk when looking for t investment options? Investors shopping for something very low in risk and who are willing to accept a lower return might look at CDs, U.S. savings bonds, or U.S. Treasury securities (bills, notes, and bonds), or money-market funds.
Because interest rates are currently so low, none of these investments offer a big payoff, and they’re vulnerable to inflation and/or liquidity risk. But it’s unlikely an investor would lose all or a big chunk of their money with any of these choices:
Certificates of deposits (CD)
A certificate of deposit account or CD is a time deposit account. These accounts require you to save money for a set time period, during which you can earn interest. Once the CD matures, you can withdraw your original deposit along with the interest earned. You can open CD accounts at brick-and-mortar banks and credit unions or online financial institutions.
CDs are similar to a savings account, and they’re FDIC-insured , which means the government will cover the depositor’s principal and interest (up to $250,000) if the bank or savings association issuing the CD fails. But unlike other bank accounts, savers must leave their money in the account for a designated period of time—usually from a few months to a few years. The longer the term, the higher the interest rate. And if savers take out the money early, they might have to pay a penalty (although there are some exceptions).
CD Pros:
• Low-risk as interest rates can be guaranteed for the CD’s maturity term.
• FDIC coverage minimizes the risk of losing money if your bank closes.
• The ability to earn interest on funds you don’t need to use for the near term.
CD Cons:
• Withdrawing money from a CD before maturity can trigger an early withdrawal penalty.
• When interest rates are low, CD interest earnings may not keep pace with inflation.
• Some CDs may require larger minimum deposits to open.
U.S. savings bonds
Investors typically consider savings bonds one of the safest investment options.Investors can purchase EE savings bonds (the most common type of savings bond) from the U.S. Treasury Department for half the face value and accrue interest monthly based on a fixed rate. The interest rate is set for the first 20 years after purchase, and the Treasury guarantees an EE bond will be worth at least its face value when those 20 years have passed. After that, the Treasury resets the interest rate and extends the maturity by 10 more years.
Investors don’t have to hold onto a savings bond for the entire 30 years, but they do have to wait at least a year before redeeming it. And they’ll forfeit three months’ interest if they redeem a savings bond during the first five years after its purchase. The current rate for EE bonds is 0.10% annually. The return may be safe, but it’s also slow.
Savings Bond Pros:
• Earn reliable interest payments with very little risk.
• Redeemable before the bond reaches maturity.
• Useful for saving money you may not need to tap into for several decades.
Savings Bond Cons:
• Savings bonds may offer a lower rate of return compared to other safe investments or those with moderately higher risk.
• A waiting period applies to redeem bonds.
• You’ll forfeit some bond interest if you redeem them before the maturity term ends.
U.S. Treasury securities
Treasury securities (bills, notes, and bonds) provide funding for the government in exchange for a fixed interest rate. So, they are sold and backed by the “full faith and credit” of the U.S. government.
Because the government has the means to repay its investors (by printing more money or raising taxes), it’s highly unlikely it will default on these obligations, so investors get a practically guaranteed return of their principal and any interest they have coming, as long as they hold onto the security until its maturity date. For those reasons, Treasury securities land in the safe investments category.
Different types of government securities come with different lengths of maturity, and their interest rates reflect those term lengths. Treasury bonds have a higher interest rate in exchange for a longer term (30 years), but that lengthy term can be a drawback.
U.S. Treasuries Pros:
• Since they’re backed by the government, securities are among the safest investment options.
• Varying maturity terms allow for flexibility when using securities to diversify a portfolio.
• Interest is guaranteed if investors hold U.S. securities to maturity.
U.S. Treasuries Cons:
• Though safe, you likely will not see sizable gains from this type of investment.
• Once you buy a Treasury security the terms won’t change, even if newer bonds are paying higher rates.
• Selling a bond before it matures could be difficult if there are bonds with more favorable terms on the market.
Money Market Funds
Money market funds are fixed income mutual funds that invest in short-term, low-risk debt securities and cash equivalents. You may find them offered by banks though you’re more likely to encounter them at an online brokerage. They’re not to be confused with money market accounts, which are on demand deposit accounts also offered by banks and credit unions. Money market funds must comply with regulatory requirements regarding the quality, maturity, liquidity, and diversification of their investments, which can make them appealing to investors looking for a safe and steady security that pays dividends.
But the safety and short-term nature of the investments within these funds means that returns are generally lower than those of stock and bond mutual funds with more risk exposure. That means they may not keep pace with inflation.
Money Market Fund Pros:
• Money market funds are a safe investment that carry less risk than traditional mutual funds or exchange-traded funds (ETFs).
• Unlike CDs, savings bonds or U.S. Treasury securities, you’re not necessarily locked in to money market funds for a specific time period.
• Money market funds can generate returns above high yield savings accounts or CDs.
Money Market Fund Cons:
• A lower risk profile also means a lower return profile compared to other mutual funds or ETFs.
• Risk doesn’t disappear entirely; you could still lose money.
• Certain money market funds may offer greater liquidity than others.
High-Yield Savings Accounts
Typically offered via online banks, high-yield savings accounts pay a higher interest rate than other types of deposit accounts. That said, since current interest rates are extremely low, these accounts are providing scant returns.
High-Yield Savings Accounts Pros
• You will never lose your principal in a savings account.
• High-yield savings accounts are FDIC insured, so you won’t lose your deposit if your bank closes.
• Savings accounts are highly liquid, meaning you can access your money quickly at any time.
High-Yield Savings Accounts Cons
• Since interest rates on these accounts are lower than inflation, your money could lose purchasing power over time.
• High-yield savings accounts offer a lower rate of return compared to other safe investments or those with moderately higher risk.
• Some banks place limits on the number of withdrawals that you can make from a savings account each month.
Recommended: Breaking Down the Different Types of Savings Accounts
4 Investments Known for Low-to-Moderate Risk
Investors who are willing to take on more risk—even if it’s just a bit more—may find specific types of bonds and preferred stocks offer the yield they need. Their choices might include:
Investment-grade Corporate Bonds
Corporate bonds may not be as safe as CDs or government bonds, but investors generally consider them a lower risk than stocks. The term “investment grade” lets investors know a bond is a lower risk based on ratings received by either Standard & Poor’s or Moody’s. You can purchase corporate bonds through some online brokerage accounts.
Investors expect that a higher-quality investment-grade bond—rated AAA, AA+, AA, and AA- by Standard & Poor’s—will perform consistently and pay interest on a regular basis. Bonds rated A+, A, and A- also are considered stable, while those rated BBB+, BBB, and BB- may carry more risk but are still considered capable of living up to their debt obligations. Like other types of bonds, corporate bonds are susceptible to interest rate risk, and with a longer commitment, there’s typically more exposure to that risk.
Corporate Bond Pros:
• Investors can earn interest from corporate bonds for reliable income.
• May offer higher yields than other types of bonds, with longer terms generally producing higher yields.
• Higher-grade bonds generally have a low default risk, making them relatively safe investments with high returns.
Corporate Bond Cons:
• Default risk could mean losing money if the bond issuer fails to uphold their end of the bargain.
• Interest rate risk can negatively impact a corporate bond investor’s return profile.
• Longer bonds may carry a higher degree of risk compared to bonds with shorter terms.
Municipal Bonds
Municipal bonds, or munis, are bonds issued by local governments. The money raised from these bonds typically funds public works projects, such as road maintenance or school construction. Municipal bonds have tax advantages that corporate bonds don’t have. Though the interest rate is generally lower than similarly rated corporate bonds, they are exempt from federal taxes, and some also may also be exempt from state or local taxes.
Munis also are considered fairly liquid, although there’s always the risk that, based on what’s happening in the market or economy, there won’t be a buyer. And though the default risk is considered low on munis, there is the chance that rising interest rates could cause prices to go down.
Municipal Bond Pros:
• Municipal bonds generally have a low default risk, as they’re issued by local government entities.
• Interest on most municipal bonds is tax-exempt for investors.
• You can purchase municipal bonds through some online brokerage accounts
Municipal Bond Cons:
• Muni bonds may offer limited liquidity for investors, so it’s important to consider the maturity term.
• Like other bond options, municipal bonds may be more sensitive to interest rate risk.
• Not all municipal bonds offer exemptions from state or federal income tax.
Preferred stocks
Preferred stocks, or preferreds, may be an appealing option for conservative investors looking for a higher yield than CDs or treasuries have to offer. Preferreds are often referred to as a “hybrid” investment, because they trade like stocks but are like bonds in that they provide income. You can trade shares of preferred stock in some online brokerage accounts.
These investments generally pay quarterly dividends that you can use as income or reinvest for more potential growth. In a worst-case scenario, if a company can’t pay its preferred dividends for a while, the money owed accumulates as backpay. And when the company resumes payments, preferred shareholders get their accumulated dividends before those who own common stocks.
You can sell preferreds at any time, but they’re typically used as a long-term investment. Just as with corporate bonds, companies that are more financially stable will receive higher marks from credit ratings agencies, so investors can have some idea of what they’re getting into.
Still, the ins and outs of buying preferred shares can be complicated, so beginners may want to work with a financial professional who is experienced in this type of investment.
Preferred Stock Pros:
• Preferred stock can offer consistent income in the form of dividends.
• Preferred stock shareholders take priority for debt repayment in the event that the company goes bankrupt.
• Investors can realize capital gains when selling preferred stock if shares have appreciated in value.
Preferred Stock Cons:
• Companies that offer preferred stock can reduce or eliminate dividends so payouts are not necessarily always guaranteed.
• Like other stocks, preferred stocks can be riskier investments than bonds or similar securities.
• Preferred stock shareholders are not assigned voting rights.
Blue Chip Stocks
Stocks issued by big companies that have a reputation for performing well in good times and bad are typically known as blue chips. They aren’t immune from big losses, but they tend to handle market drops better than other stocks. You can purchase blue chip stocks through an online brokerage account.
These companies have a history of dependable growth and paying consistent dividends. Investors who want to do some research can get insight on blue chips by checking out the “Risk Factors” section of a company’s annual 10-K filing.
Companies must list their most significant risks, usually in order of importance. Some risks apply to the entire economy, some to that particular industry, and a few may be specific to that company.
Recommended: How to Find Blue Chip Stocks
Blue Chip Stock Pros:
• Blue chip stocks are typically associated with stable companies, making them less susceptible to market volatility.
• Some Blue chip stocks pay regular dividends
• Blue chip stocks have the potential for long-term, steady growth which can allow investors to reap the benefits of capital appreciation.
Blue Chip Stock Cons:
• Blue chip stocks are not entirely insulated against market volatility or its accompanying downside risk.
• Blue chip stocks may have limited growth potential, as these are companies that are already well-established.
• Investors interested in adding innovative companies to a portfolio may be disappointed by blue chips, as these are usually older companies with a set business model.
4 Investments Known as Having a Higher Risk
We tend to think of risky investments as the type that result in either a jaw-dropping payoff or a soul-crushing loss—and that they aren’t for the faint of heart. But another way to look at it might be in terms of probability: What are the chances the investment will underperform or result in a substantial loss?
Is the potential gain worth passing up on steadier and safer investment returns? Is this an investing decision based on careful research and/or sound advice, or is it a gamble? Traditionally, investors consider stocks a riskier investment than bonds, but there are other investments that also require careful consideration before hopping onboard.
Cryptocurrency
Cryptocurrency, or crypto, is a digital currency that operates independently of a central bank. Crypto refers to the encryption used to keep the transactions safe. You can purchase cryptocurrency through a digital currency exchange, though more brokerages are offering this as a trading option.
There are many cryptocurrencies in issue. The most well-known is probably Bitcoin, and its price has fluctuated substantially since its launch in 2010. So while the crypto market is maturing, and there’s more oversight and regulatory control, it’s still considered an extremely risky investment. For those interested in gaining exposure to digital assets, SoFi offers users the ability to trade cryptocurrency with SoFi Invest.
Cryptocurrency Pros:
• Cryptocurrency is a newer investment, meaning there’s a fairly wide horizon for it to expand and grow in popularity.
• Return potentials can be well above-average, depending on the cryptocurrency you’re invested in.
• There are numerous crypto options to choose from, allowing you to tailor your picks to currencies that fit your risk/return profile.
Cryptocurrency Cons:
• Cryptocurrency is still largely unregulated and it’s often a target for fraudulent activity.
• The crypto market is highly volatile, meaning investors often see wide pricing swings from one day to the next.
• Investing large portions of your portfolio in cryptocurrency could expose you to significant losses.
Hedge Funds
Hedge funds pool investors’ money to buy securities or other types of investments, just like mutual funds. But they aren’t as heavily regulated as mutual funds and have more latitude when it comes to pursuing riskier investments—and they often do. They also may have higher fees than other types of funds.
Hedge fund managers get paid based on performance, which may make them more willing to go for the bigger payoff. Most hedge fund investors are “accredited,” which means they have more than $1 million or sophisticated financial knowledge. As such, hedge funds investments typically take place through a financial advisor or wealth management firm versus rather than an online brokerage.
Hedge Fund Pros:
• Hedge funds have the potential to beat the market, delivering above-average returns to investors.
• Compared to mutual funds or ETFs, hedge funds can add a more sophisticated layer of diversification to a portfolio.
• Hedge funds are suited to investors who are comfortable with a more aggressive approach.
Hedge Fund Cons:
• Hedge funds are often limited to accredited investors, so everyday investors may not have access to them.
• These funds typically carry higher fees than mutual funds or ETFs.
• While hedge funds can offer higher returns, they can also carry a greater degree of risk.
Promissory Notes
Promissory notes are similar to bonds in that investors loan money to a company, which promises to pay them back a fixed amount of periodic income. But since businesses typically issue promissory notes when they can’t get a traditional loan, they’re associated with greater risk, and investors who buy these notes do so with the expectation that they’ll get a greater rate of return. Typically, you’ll need to look online to find a private seller if you want to purchase promissory notes.
Investors can verify the legitimacy of a promissory note by checking the SEC’s EDGAR database or by calling their state securities regulator .
Promissory Note Pros:
• Promissory notes may generate stable interest income for investors.
• Mortgage promissory notes can allow an investor to diversify with real estate without owning property.
• These investments can provide reasonable returns for investors willing to take the risk.
Promissory Note Cons:
• Promissory notes are frequently a target for scams.
• Returns are not guaranteed, and it’s possible the return you realize will be much lower than anticipated.
• Failure to perform due diligence could result in purchasing an unregulated promissory note security from an unregistered seller.
Real Estate Securities
Real estate investment trusts (REITs) offer investors an opportunity to earn income through commercial real estate ownership without the hands-on work of buying and managing the properties themselves. Investors can use REITs to diversify their portfolio, and some REITs may offer higher dividend yields. You can purchase REITs and REIT ETFs at some online brokerages.
But there are risks—particularly when investing in non-traded REITs, including liquidity risk and high fees and commissions that can lower an investment’s value, and tax implications. Just as with promissory notes, investors can use the SEC’s EDGAR system to review a REIT’s history and other information.
REIT Pros:
• REITs allow investors to diversify with real estate investments without owning property directly.
• Investors can benefit from regular dividend payouts from REITs.
• Historically, real estate can be a solid investment as it’s more insulated against market volatility.
REIT Cons:
• REITs are more illiquid compared to other investment options.
• Some REITs may carry higher fees than others or entail more risk, depending on what types of property they’re invested in.
• Capital appreciation is less easily realized as REITs are required to pay out 90% of dividends to investors.
Why Invest If It’s So Risky?
If a person can’t invest without risk, why invest at all? Because every year, goods cost more and more, which can make it difficult to save for a goal or build a nest egg in a basic savings account (Not that there’s anything wrong with keeping a little stash of fun money or a savings account for emergency funds.)
There’s a reason the sayings “nothing ventured, nothing gained” and “no risk, no reward” have been around so long.
But having some knowledge of where various investments fall on that range of risks—as well as the types of risks to which a particular investment could be exposed—may help investors find the returns they need while still holding on to some sense of control.
Of course, it also helps to know thyself.
Because netting bigger rewards often means taking on more risk, investors may benefit from understanding the degree of risk they’re comfortable with and capable of enduring.
Are you willing to get on the biggest, baddest thrill ride out there, hanging on with white knuckles through the peaks and plummets? Or would you prefer something that’s slow and steady, that keeps chugging along with no big surprises? Or maybe you’d be happiest somewhere in the middle, with the potential for a few minor bumps but not the kind of crazy stuff that could leave them financially and emotionally drained.
Unfortunately, you typically won’t find big signs posted in front of your investment choices warning: You must be this risk tolerant to buy this stock. That’s why it’s important to research every asset they add to their portfolio—or get help from a professional advisor when choosing between the riskiest and safest investment options.
Protect Your Investments Through Diversification
When deciding how much risk to take, investors typically consider several factors, including their age, personality, and purpose. Investors who can’t handle a lot of risk for any or all of those reasons may wish to lean toward those investments that are typically the safest.
But another way to help protect a portfolio is through diversification: choosing investments from different asset classes, in different sectors, and with different risk factors. For example, you may choose to invest in a mix of safe investments such as bonds or U.S. Treasury securities alongside higher risk investments, such as individual stocks or cryptocurrency.
Having some low-risk assets in a portfolio can minimize the impact of volatility in other assets. Typically, investors with a long time horizon (such as young investors saving for retirement) can take on more risk in their portfolios, while those with shorter-term goals may want a more conservative approach. Investors with a low tolerance for risk may prefer safer investments during times of uncertainty.
Diversification can help to balance risk so you don’t have to make an either-or choice with regard to a risky investment or safe investment. The various assets in your portfolio can counterbalance one another as the market moves through changing cycles.
The Takeaway
Navigating through multiple investments and their different risk profiles can be overwhelming. But you don’t have to go it alone. With the SoFi Invest®️ online brokerage platform, a financial advisor can help you figure out how much risk you can tolerate—and which investments will get you to their goals.
SoFi’s Active Investing platform lets investors choose from an array of stocks, ETFs or fractional shares. For a limited time, funding an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is open and fund a SoFi Invest account.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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