Risk is a subjective concept, and you can choose the level of risk you're comfortable taking when investing your money. Low-risk investments have a low correlation to the market and are less volatile than generic high-risk investments. These investments are typically government bonds from developed countries. In other words, they're safe bets, but you need to decide whether or not they're right for you.
TIPS, or Treasury inflation-protected securities, are government bonds that offer both modest interest payments and protection from inflation. As the name suggests, TIPS offer low risk and diversification, and are a core component of a well-rounded portfolio. The current rate of inflation is approaching 7 percent annually.
TIPS are available from many online brokers. TIPS are listed individually by the broker and contain important pieces of information. You should note that the information presented by each broker may differ a little. One of the most important pieces of information about TIPS is the maturity date. When a TIPS matures, investors receive either an adjusted principal balance or face value. TIPS can also be sold on the secondary market for a profit or loss.
TIPS offer inflation protection to the bonds they back, but there are also risks. Inflation-protected bonds usually have lower yields than traditional fixed-rate bonds, so their price may drop in periods of deflation. Inflation protection is limited to government-issued securities, so TIPS fund yields may fluctuate with market conditions. TIPS are also an excellent way to diversify your portfolio.
CDs are a great way to invest money that does not involve a lot of risk. Their fixed interest rates mean that their return will not be affected by the fluctuations in the market. Contrast this with other investments, such as blue chip stocks, where the return on investment is tied to the change in price. In addition, investors should know that the margin of loss is very large between the time of purchase and sale.
Another great feature of CDs is that they increase in interest as time goes by. This will encourage you to save longer and earn more interest. This feature is particularly useful when you need to build a retirement fund, since CDs can reach maturity when you reach a milestone in your life.
If you're looking for the lowest risk investment option, dividend stocks may be right for you. Dividends are a great way to boost total return. However, the process of predicting dividend growth is not simple. Fortunately, there are some indicators that you can look for when evaluating a dividend stock.
Dividend stocks offer a stable income stream and tax credits. Some companies also offer a Dividend Reinvestment Plan (DRIP) program, which lets you turn your dividends into additional shares. This can be a great option for shareholders who would like to own more shares without paying a commission.
Dividend stocks offer attractive dividend yields. The S&P 500 index has a dividend yield that is 49% higher than the 10-year US Treasury Note. This is one of the highest dividend yields on record. Furthermore, dividend yields have been responsible for much of the total return of a stock in the past, with stocks in the highest quintile underperforming those in the second. Thus, investors should focus on dividend yield when evaluating a dividend-paying stock.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
