The cost of living keeps on rising, and people are beginning to wonder if they are ever going to be able to afford a comfortable retirement. Saving enough money for retirement is obviously key however, just as important is the ability to earn a decent return on your money.
History has shown that a well-diversified portfolio of stocks, bonds, and cash is fundamental to the long-term growth of your money. Most people do not have the financial training and time necessary to manage their investment portfolio so they hire a wealth management company to advise and manage their investments. Yes there are fees associate with hiring someone to manage your money but, sometimes the best investment can be professional advice that prevents you from making a very expensive mistake.
Trust me, things begin to change when you are getting close to retire, or you want to start saving for college for your loved ones. Taking large risks with your children's college fund or your retirement fund is silly and downright scary! Below are five ways that you can make your money grow with less risk:
1. Municipal Bonds
Municipal bonds are debt instruments issued by local, state, or county municipalities to fund infrastructure or other public works projects. Investors purchase the bonds and are paid interest that is tax-free for federal income tax reporting purposes and can be tax-free if you reside in the state where the bonds are issued.
2. High-Interest Savings Account
High-yield savings accounts are very popular and for good reason. They provide a decent return on your money and are essentially risk-free of to $250,000 per account if your funds are held in a federally insured institution.
Besides interest rates, there are some other factors to consider when opening an account. It is essential that you select a financial institution with the best reputation for offering quality customer service, access to your online accounts, and an easy depositing process.
3. Certificate of Deposit
Certificates of deposit are another very popular risk-free investment. In exchange for locking up your money for one year or more, the financial institution agrees to pay you a fixed interest rate on your funds. The longer the term of the Certificate of Deposit the higher the interest rate.
CDs are a good low-risk option for those that have the cash available to lockup for a period of time yet want a higher rate than that offered at a traditional savings account.
4. Lending Clubs
Lending Clubs or P2P lending, are a fast-growing form of peer-to-peer lending. The idea behind lending clubs is to provide a marketplace where borrowers can access credit at a lower cost than at a traditional bank and at the same time providing investors a decent return on their money.
The key to reducing the risk as an investor is to carefully screen potential clients. Most peer-to-peer lending platforms have robust screening tools that can dramatically reduce the chances of loan default.
5. Treasury Inflation Protected Securities
Inflation is one risk that people often forget to take into account when planning their future retirement. Inflation has the effect of eroding away your retirement savings due to the fact that goods and services will cost more in the future. One way to hedge against inflation is to invest in Treasury Inflation Protected Securities, abbreviated as TIPS. These types of bonds have two methods of growth – fixed interest rate and built-in inflation protection.
TIPS principal value is adjusted up for inflation and down for deflation and you are paid interest twice a year based upon the adjusted principal value. When a TIPS matures, you are paid the adjusted principal value.
While there is some level of risk in anything you do, there are investments available with lower risk than others. By doing your due diligence and having realistic expectations, you can dramatically lower your risk and still earn a decent return on your money.