If you want to make money, then it’s important to try and understand how investments work. For many people, investments are typically seen as gambling.
For example, if you purchase a property and expect the value to rise, then you’re technically gambling because there’s no guarantee that it will rise in value over a specific period of time. During that time, the area could completely change and what was perceived as a “safe bet” is no longer safe at all.
Instead, you’ve just purchased a property that is useless and won’t serve many purposes. You’ve lost money on the investment and you’re now feeling terrible about yourself.
That’s the typical scenario for someone that doesn’t go into investing in the right mindset. Unfortunately, there’s not much you can do in that situation besides learning from your mistakes.
However, it might lead you to ask an important question: are there such things as safe investments? In this article, we’ll be going into what “safe” investments are if they exist and what can really be considered the safest form of investment to grow your wealth.
No Investment is Safe
Let’s preface this by mentioning that no investment is safe. Yes, even the interest that you build up in your bank account technically isn’t a safe investment because there’s a chance (albeit small) that the bank goes bust and is forced to give you back your money.
Knowing this, you should never trust someone that says their investments are a hundred percent safe. It’s absolutely a con and they’re exaggerating the success rate of whatever it is they are pitching to you.
With this in mind, we can now start the article properly. Just remember that no matter how “safe” some of these investments seem, there’s always a slight chance that you’re going to lose your money and end up feeling terrible about believing that an investment could be 100% foolproof.
Arguably the safest investment possible, a savings account is a type of account that is made to store your money that you don’t need. Compared to regular checking bank accounts, it’s made for money that you won’t be using on a regular basis.
This means that you’ll be paid a slightly higher interest and you can open one with relative ease. You can do it over the phone, on the internet or even in a bank. It’s a good idea to compare multiple banks because interest rates can differ. Saving accounts are also fantastic for teaching young children how to manage their financial goals.
Sadly, because there’s virtually no risk involved with a savings account, there’s very little return. To make things worse, the interest rates you earn are most likely going to be lower than actual inflation rates. This means that if you leave money to rot in a savings account, you might be getting a terrible deal.
Certificate of Deposit
A certificate of deposit (usually referred to as a CD) is a low-risk investment. As such, this means that it’s a low-return investment (there are rarely ever low-risk high-return investments, that’s just how it works).
It works by telling your bank that you don’t need your savings or a certain amount of money in your bank for a certain period of time. Knowing this, your bank will give you a slightly higher interest rate assuming you can actually keep the money in your bank. The gains from a CD are taxable, so keep this in mind.
You’ll want to use a CD rate calculator to find the best rates for this type of investment. As mentioned at the start, it’s a relatively low-risk low-return investment and relies on you having a large amount of savings that you won’t touch.
It’s not the best way of making more money from your wealth, but it’s safer than most other options yet pays higher than regular interest earnings. There are several types of CD, but the options will need to be discussed with your bank if you want full information about it.
A fixed annuity is another common safe investment that is taken out with insurance companies. You essentially give them money and then they’ll pay you back a guaranteed return.
It sounds great, but one of the main drawbacks of a fixed annuity is that you can’t withdraw the money easily like you would a bank savings account. As a result, you’ll end up paying penalties and taxes if you want to withdraw your money early.
However, it’s one of the safer investments because you know how much you’re getting at the end of it. It may sound like a relatively safe investment, but the rates are slightly higher than a certificate of deposit and a savings account. They’re regulated as well, even if the insurance company goes bust you’ll still get a return.
Money Market Account
If you want an alternative to typical bank accounts then perhaps a money market account would fit your needs. The main benefit of a money market account is that they are short-term investments.
Typically, a company will recruit professional analysts and traders that will trade with your money or use it to offer loans and essentially “sell” your money to others. As a result, you won’t be able to withdraw your money as often as a typical account but it does offer higher interest rates.
The main drawback with a money market account is that it has a hard time competing with inflation rates. However, since you have easier access to your money, you can withdraw and deposit money more often.
Sadly, you are limited by the number of withdrawals you have and this can be a quite bothersome for some people. However, it’s a fantastic alternative to a regular bank account or even a savings account if you want to make a little passive money.
Just remember that with low risk comes low return. If you’re thinking of getting rich with low-risk investments, then you’re out of luck.