While many people want to get a good rate of return on their investment, others are more interested in making sure their money will be safe from the uncertainties of the economy and financial markets. Another important part of a safe investment is that it is simple to understand. Below you will find the five absolute safest investments for your hard earned money.
1. Certificate of Deposit
A certificate of deposit or CD is a negotiable instrument you get from a bank. Depending on the amount of money you want to invest, it guarantees you a specific rate of interest over a specific period of time. You can withdraw your money prior to the end of the period, but doing so will come with a financial penalty and can have tax consequences as well. Your investment is insured by the Federal government up to as much as $250,000, so there is no need to worry about losing it.
2. Money Market Account
One of the biggest differences between a money market account (MMA) and a CD is the period of time you will have to wait before having access to your money without paying a penalty. The MMA allows you to withdraw money periodically, usually once a month, so you can continue having access to your money if your situation changes. Other than this, a MMA is almost exactly the same as a CD investment.
3. Municipal Bonds
Also called “munis” this type of investment involves buying the debt of a city, county, or state government with a stated rate of return attached to it. The reason this is a safe choice is because unless the municipality (city, county, state) goes bankrupt, you will get your money back – plus interest. Your investment also has some very useful tax advantages because all of the interest made on a municipal bond is tax-exempt. It’s not exactly free interest, but close to it.
4. Treasury Inflation-Protected Securities
This financial instrument known as TIPS is issued by the federal government instead of a municipality, and it is designed to minimize the loss of your money if inflation begins to get out of control. Its par value it connected to the rate of inflation, so when inflation rises so does the value of your TIPS investment. Because it is issued by the federal government, there is very little chance you will lose your money.
There are some people who see gold as a highly speculative investment, but historically the opposite is true. While the price of gold does move up and down more quickly than some people prefer, it always will have some value no matter what the financial markets or economy are doing. It is especially safe in times of high inflation. Other financial instruments can be problematic when it comes to inflation, but gold is globally accepted as a form of currency. The point critics of gold overlook is that gold is only a part of your total investment portfolio. Just like you wouldn’t put all your money in a CD, you shouldn’t put all of your money in gold.
Virtually every professional investment advisor will urge you to spread your investment money around by choosing financial instruments with different degrees of risk and different rates of return. The basic idea is that if you suffer a loss with one investment, that loss can be offset by a gain in another type of investment. The goal is to give you the greatest opportunity to make something on your investment portfolio. As someone once said, any number greater than zero still puts you ahead.
Also, before you invest in any of these safe instruments, do your homework. Not every city or state has the same bond rating, meaning some municipalities are more likely to fulfill their obligation to their bond holders than others. The same applies to banks. While your money in a bank is guaranteed by the Federal government, you don’t know when you might have access to your money. Since your goal is safety, not rate of return, you will need to find the least risky place to put your money.
A final note about gold. There are many ways you can invest in gold, such as gold stocks, mining companies, and holding on to the actual physical gold. If you choose the physical gold, get a safe deposit box and keep it there for safekeeping. Because gold is so easily accepted by most people as a form of payment, it is actually better than cash in many situations.