Here are 6 lower risk investment options

If you’re investing for retirement, you need to be careful.

As you settle into your golden years, the last thing you want to experience is a serious financial crisis that could threaten your comfortable lifestyle and force you back into your 9-to-5 routine.

That’s why we’ve compiled a list of lower-risk investment options that you can add to your portfolio to keep growing your nest egg without the constant fear of losing it all.

Investing in retirement? Here are 6 lower risk options to add to your portfolio

1. Bonds

Simply put, bonds are debt obligations that organizations issue to raise money. In return, these organizations agree to pay you interest payments while you wait for the bond to mature. On the bond’s maturity date, you receive the face value of the bond. The target rate of return on bonds varies by bond type and maturity, but typically falls between 2% and 6%.

Compared to other popular investment options such as stocks, bonds are much less volatile, making them less likely to experience significant fluctuations in value. Here’s why: Unlike stocks, investing in bonds doesn’t give you ownership rights. In other words, you won’t benefit when the organization grows, but that also means you won’t take as much of a financial hit when the organization’s performance suffers.

Some of the most common types of bonds include corporate, municipal and treasury bonds.

  • Corporate bonds. These bonds are issued by companies to raise capital for various purposes such as expansion or research. While they typically offer a higher yield than government bonds, they also come with a higher level of risk, as companies are more likely to default on their debt obligations.
  • Municipal bonds. As the name suggests, municipal bonds are issued by state and local governments. They are often used to finance infrastructure projects, such as building schools and hospitals.
  • Treasury bonds. Treasury bonds are issued by the US government to support public spending. Because there is little chance that the government will default on its debt, Treasury bonds are generally considered one of the safest investment options and can provide a stable source of income for retirees. However, because of their low risk, government bonds typically offer lower yields than corporate or municipal bonds.

Before investing in bonds, consider factors such as interest rates, credit ratings and the maturity of the bond. By choosing a mix of bond types to diversify your investment portfolio, you can create a low-risk investment strategy that provides reliable income throughout your golden years. You can usually buy bonds through a broker, an ETF, or from the US government at TreasuryDirect – depending on the type of bond you want to invest in.

Cash is king again. High interest rates make safe investments more attractive.

2. Publicly traded REIT index funds

According to RJ Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth, quality REITs or index REITs that invest in major real estate are another low-risk investment option to consider during retirement . Because REITs are required by law to pay out 90% of their annual income to investors as dividends, they offer some of the highest dividend yields in the market – with a target rate of return that ranges from 3% to 6%.

However, Weiss notes that REITs “may be susceptible to changes in interest rates, as economic fluctuations and market risks can affect property values ​​and rental income.”

Despite these risks, REITs remain a safer investment option than traditional stocks, given their lower volatility and large dividends.

3. High interest savings accounts

If you have an extremely low risk tolerance and don’t want to put your money into the stock market, you can consider opening a high-interest savings account. For example, Ally Bank currently offers a high-yield savings account that earns 3.75% APY.

By parking your excess cash in high-yield savings accounts instead of your checking account, you can prevent rising inflation from eroding your purchasing power during your retirement years. In addition, most high-yield savings accounts provide easy access to funds and FDIC insurance up to $250,000.

To find the best deal, take the time to compare and keep an eye out for promotional offers from different financial institutions. Check out our top picks for the best high-yield savings accounts to get started.

4. Inflation-protected government securities

Inflation-protected securities, also known as TIPS, are a type of Treasury bond issued by the U.S. government that offer protection against inflation. Because the principal value of TIPS is indexed to inflation, its value adjusts as prices rise.

For example, if your principal is $2,000 and the CPI shows an inflation rate of 3.5%, your new principal will be $2,070. Your interest payment will also be based on the adjusted amount.

When the bond matures, you will receive either the inflation-adjusted or original principal amount, whichever is greater. If you want your investments to keep pace with inflation, it’s worth considering Treasury Inflation-Protected Securities.

TIPS are issued with maturities of five, 10, and 30 years and pay cash interest every six months. You can purchase them through your brokerage account or by going to the US Treasury’s website, TreasuryDirect.

5. Preferred Stock

Another low-risk investment option to explore during retirement is preferred stocks. This type of asset has characteristics of bonds and conventional stocks, allowing investors to receive predictable income payments and still have ownership rights.

Although not guaranteed, dividend payments on preferred stock take priority over dividends on common stock. His priority extends to bankruptcy. If a company goes bankrupt, preferred shareholders will be paid before common shareholders.

And you generally get higher regular dividends with preferred stock — about 5% to 7%. You can buy preferred stock the same way you buy common stock—usually through an online broker or investment app.

6. Certificates of Deposits (CDs)

A certificate of deposit is a savings account that some banks and credit unions offer to their customers. Here’s how it works:

By opening a CD account, you agree to leave your money in it for a certain period of time, from a few months to a few years. In return, the financial institution will give you a higher interest rate than you would normally get on a regular savings account. And compared to stocks or other investment options, CDs are relatively safe because your money is held in a bank.

But here’s the catch: When you buy a CD, your funds are locked in for the duration. So, only consider putting your money in a CD account if you’re 100% sure you won’t need the money in retirement.

Jamela Adam is a personal finance writer covering topics like savings, investing, mortgages, student loans, and more. Her work has been published in Forbes Advisor, Chime, US News & World Report, RateGenius, and GOBankingRates, among other publications.

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