Throughout our working years it is always important that we are always investing in our future. Early in our careers as we are building our savings and have a long timeline for wealth accumulation we may be able to afford the higher risk, high return investments. In the event, there is a market downturn we are still left with a long recovery time to bounce back and continue to build our nest egg.
However as we approach later in a career, our investing approach should take a pivot away from the high-risk opportunities to a more balanced attacked of low risk, moderate return investments that we can count on as we near retirement and beyond. The first step as we adjust our investment strategy is knowing where we stand and calculating where we want to be.
It would be wise to connect with your financial adviser and do your research for your best retirement investing strategies. Below are a few of the best low-risk investment options, some that even let you earn a respectable return with almost no risk at all. We have also included a fee BONUS opportunities that could yield higher returns with moderate risk.
Money Market Funds
Money market funds are mutual funds comprised of CDs, short-term bonds and other low-risk investments grouped together to create diversification without much risk, and are typically sold by brokerage firms and mutual fund companies.
They may not pay out quite as handsomely as some of the more risky investment opportunities you could choose to take advantage of – but they are a fantastic risk-free opportunity for those looking to maintain and steadily grow their account. In addition, a money market fund is liquid, which means you typically can take out your funds at any time without being penalized.
Parking your cash and capital into a money market fund with a top-tier brokerage is a secure method to protecting the money and provide peace of mind from day to day market fluctuations.
Municipal bonds are debt securities issued by a state, municipality, or county to finance capital expenditures. The greatest advantage of municipal bonds is that the interest you earn is tax-free for federal income tax purposes. They may also be exempt from state and local taxes if you live in the state where the municipal bonds are issued.
Bonds, individual or bundled in funds, are loans you give to governments, municipalities or corporations that then pay you regular interest. When the bond matures, its face value is returned to you. Given the federal tax-free element, bonds are a lower-risk option than other investments, which means lower returns (usually). But as your shifting from high-risk options to steady strategies, you can buy bonds not to grow cash but for the regular interest income they produce, and for the guaranteed principal you will receive when they mature.
Annuities are investment contracts set up between you and an insurance company. They come in 2 different categories and usually include a guaranteed return at a stated rate by the insurance company. Annuities may be either variable or fixed, and the rate of return can depend on stock market performance. However, to reduce risk, an annuity contract may include a provision that will limit your exposure in the event of a market decline.
The flexibility of an annuity is particularly advantageous for an investor reaching retirement since he or she can invest today, let the principle grow on a tax-deferred basis, and then select a payment period for a fixed or variable rate of time.
Although annuities can provide guaranteed returns, it is also important to be aware of fees and commissions the annuity charges. Many annuities have complicated contract elements. It's important to work with a trusted adviser and to fully understand the product before buying one.
REITs (Real Estate Investment Trusts) are corporations that own and manage a portfolio of real estate properties and mortgages including apartment buildings, commercial structures, vacation properties, etc. Anyone can purchase shares in a publicly traded REIT. For a fee, professionals manage the properties, collect rent, and pay expenses, and you receive the remaining income. They offer the benefits of owning real estate without the headaches or expense of being a landlord.
Investing in some types of REITs also provides the important advantages of liquidity and diversity. Unlike investing in fixed real estate property, your shares can be sold easily and quickly. You also face far less financial risk given the investment is in a portfolio of properties rather than a single building. Given their diversification, REITs returns often outperform most real estate investments with average an annual return of 11.8%. Overall REITs can be a good retirement investment choice.
Some Middle Risk High Return Investments to Consider
Once your retirement portfolio is balanced and you feel confident in your steady low risk investments. You may expand your appetite and consider moderate risk classes with higher return potential. Here are a few investments to consider to add higher returns with a moderate but stable risk class.
Dividend Paying Stocks and Mutual Funds
A simple way to get a bit more return out of your stock investments is to seek out stocks or mutual funds that have dividend payouts. If two stocks have the same performance over a given time period, but one has no dividend and the other pays out 4% per year in dividends, then your stock with the dividend payout would be the obvious better choice.
However, choosing individual stocks isn’t easy and comes with a risk that the company may fold and lose your investment. Your safer bet would be to invest in a dividend stock mutual fund. In a dividend stock mutual fund, the fund company identifies stocks that payout nice dividends and does all of the work for you. You also get diversification so that one or two stocks can’t tank your entire investment.
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The Bottom Line
As you get closer to retiring, it’s important to reduce your risk as much as possible. You don’t want to begin losing capital this late in the game; since you have many years of retirement ahead.
These best low risk investments can help you do just that. Allowing you to earn moderate amounts of interest on your investments with a lower risk, you can help your nest egg keep up with inflation without having to stress.
It is always important to do thorough research and educate yourself on each investment product or service you do consider. If you are ever unsure you should speak with a trusted financial adviser and clearly understand your investment options.
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