Everybody is looking for the best low risk investments at this point. In times of economic uncertainty it is common for investors to reduce risk by selling out of their stocks and looking for safer investment options. As we’ve noted in the past few months, most major stock indexes around the world have had a substantial decline. This means demand for stocks is in decline.

On the other hand, U.S. bond yields have been on the rise. This is happening because, with inflation on the rise, the U.S. central bank sees no other choice but to raise interest rates. As interest rates rise, so do bond rates.

That is not to say bonds are the only option. Let alone the best low risk investment to run to in times like these. It’s important to point out that, even though yields are high right now, if you commit your money for a long period and inflation subsides during the same period, you will find yourself willing to move that money into higher risk investments. By selling your bonds before they are due, you will incur penalty fees. This can erode or completely wipe out your gains.

The smartest thing you can do is diversify. There are a number of lower risk and higher liquidity investment options out there. You can invest in those along with bonds to reduce liquidity risk. But with inflation running rampant, it is unwise to completely eliminate higher risk investments from your portfolio.

The best low risk investments will also give you lower returns over the long run. If you think about nothing but keeping your dollars safe, inflation will still erode their purchasing power. What you can do instead, is look for alternative stock strategies such as investing in stocks for dividends. This will significantly reduce relative risk and provide good long-term returns.

If you like the feeling of safety a savings account provides, you are going to love money market accounts. Not only will your money be safely stored and earning interest, but you can access it through a debit card. What you should know, however, is that this kind of account requires a higher minimum deposit than regular savings accounts.

“Why not simply invest in a savings account?” – you might ask. Well, inflation. Even though savings accounts will not let your principal decrease a penny, their returns seldom outpace how fast inflation can erode the value of your money. That is not to say money market accounts will always outpace inflation. Quite often they won’t, but they will in general perform much better than regular savings accounts, and are one of the best low risk investments out there.

When selecting a money market account, make sure you compare APYs and minimum balance requirements. The amount of money you keep in the account can significantly influence whether you will be paying maintenance fees and even the APY you are getting.

It’s not wise to use money market accounts for keeping money you will need to be using on a daily basis. Even though you may get a debit card and even ATM access with it, many of these accounts will have limited withdrawals.

You can find brick-and-mortar banks where you can walk in and talk to a banker about money market accounts. However, there are online banks which offer much higher interest rates and much more convenient customer service on their website or mobile app. 

CDs are one of the best low risk investments you can make because they’re backed by federal insurance. With an FDIC-insured account, unless you withdraw early from a CD, it will always be safe. You should try searching online for highest rates on short term CDs before committing your money for long periods with ones that are below market. That could lock down profits when interest rates go up later next year (which right now seems inevitable).

You can avoid paying a penalty for withdrawing from an early CD. With a no-penalty CD, if you want to change the investment strategy or take out some money before it matures, you won’t incur a penalty fee. In uncertain times, it might be wise to keep at least some of your money easily accessible in case another, more profitable opportunity shows up

There are, of course, excellent high-interest savings accounts which earn higher rates than CDs. These accounts, however, usually require you to make a big deposit. So if you don’t have too much money, CDs are still a better pick.

These are, by far, not as safe as any of the previous options. Stocks are, by their very businessy nature, much more volatile assets than CDs, money market accounts, government bonds and cash. They are influenced by a plethora of factors ranging from macroeconomic ones down to business-specific events.

However, dividend stocks are in general considered safer than growth stocks because they can at least partly offset their volatility by regularly paying cash dividends. This doesn’t make it a low-risk investment. Rather, it’s lower risk. So make sure you only allocate a portion of your capital which you won’t be depending on for quite some time.

This is true due to the fact that, in general, companies that pay dividends are much more well established and mature. Their business is so solid, instead of reinvesting profits to further grow the business, the company pays them out to investors.

Not only will dividend stocks provide you with a stable source of income, but over time, as economic conditions go back to normal, they offer a much more promising growth opportunity for your money.

Investing is an art, and as such requires constant study, practice and improving of skills. There are a number of tools out there to help you analyze and select the best low risk investments for your financial objectives. If you’d like to take a look into a very good one, check out the link below.