Best Low-Risk Investments with High Returns for 2021



When you invest, there’s always going to be a risk. Even Fort Knox could potentially come under siege.

Still, some investments carry a meager amount of risk. In light of the volatility of 2020 and the numerous crashes we’ve experienced, there’s never been a better time to look at “safer” investments.

What is a low-risk investment?

In plain English, a low-risk investment is any investment that has a high probability of paying you back with a positive return. You put a dollar into the investment machine, and you get more than a dollar back.

Though you can’t be 100% certain that this will happen, you can be reasonably sure that your money is safe and you can sleep at night knowing that you’ll may even make some interest.

Typically, low-risk investments come with low rewards, too.

The price of risk is the return. If you’re willing to live with some uncertainty, you can potentially make a lot more money. On the flip side, you could also lose your shirt.

To find the right balance, I’ve identified and ranked low-risk investments with a decent chance of keeping up with inflation. Some could even provide double- or triple-digit returns.

Why low-risk investments are smart

Even though low-risk investments are not a get-rich-quick scheme, you can still enjoy the process of watching your money grow.

If you’re early in your investing career (and still young), you can enjoy the magic of compound interest. Even with small starting sums and relatively low-interest rates, you’ll see your wealth grow dramatically after a couple of decades.

That’s why the best time to start investing is now. Even if you don’t have a ton of cash, and even if your risk tolerance is low, you can still take the critical first steps of securing your financial future.

Overview of the best low-risk investment tools

Platform Best for
Acorns New investors, people who want help saving money each month
E*TRADE Both active traders and beginning investors that want a choice of features
You Invest by J.P. Morgan Investors that want help from a financial expert
Betterment Passive investors interested in mutual funds
Wealthfront Investors that want a hands-off approach
CIT Savings Builder Conservative investors that want to hang on to their cash while earning interest
Worthy Bonds Beginning investors without a lot of cash
Lending Club Investors who want to change the world by helping others

Investments ranked from lowest risk to highest risk (but still a relatively low risk)

You’ve probably heard of most of these investments before, but you might not know where they land on the spectrum of risk. I’ll break it down and share some tips to get the most out of these asset classes.

High-yield savings accounts

Traditional banks are one of the worst places to put your money, but if you can find a bank with a high-yield savings account, you could get over 1%. That might not seem like a lot, but it’s not too shabby with the current rock-bottom interest rates. Compare that to Bank of America, which pays 0.01% annual percentage rate (APR), and a high-yield account pays 100 times more!

Tip: Chime Bank currently offers one of the highest APYs available right now. Plus, no minimum, monthly or overdraft fees! Read more in our Chime Review.

The reason that savings accounts make it to the top of my list is that most banks are FDIC-insured. If your account balance is $250,000 or below, you’ll get your money back if the bank fails.

Pro Tip: Choose an online bank for the best benefits. Because they don’t have expensive brick-and-mortar locations to staff and maintain, they can afford to pay better rates, and most have no fees.

One of my top picks is CIT Bank. They currently offer 0.45% APY. As long as you maintain a balance of at least $25,000 or make at least one monthly deposit of $100 or more, you’re eligible to be an account holder.

Certificates of deposit (CDs)

Like savings accounts, CDs are FDIC-insured, so they’re one of the most secure investments you can have. Their rates are higher than traditional savings accounts, but usually not as generous as their high-yield counterparts.

The risk with CDs is that your money is tied up for a specified time, ranging from 21 days to 10 years. If you want to access your money early, you’ll pay a fee. There are exceptions in the form of no-penalty CDs, which often let you take your cash whenever you want, as long as you held it for an introductory period.

Pro Tip: If you want to make CDs a part of your long-term investing strategy, consider a CD ladder. This allows you to continually add money to your CD and lock in whatever the highest interest rate is until the next maturity period. And you can also access your cash when you need it because each investment matures yearly.

Here’s a list of current CD rates. These rates are updated throughout the day:

Treasury Notes and Bills

Despite recent events, most of us would consider the U.S. Government a stable entity. Therefore, if you loan money to the government, which happens when you buy a Treasury Note or Bill, you can be reasonably sure you will get paid back.

Yes, we know that the current U.S. debt is currently over $27 trillion (and climbing), but we also know that its fourth-largest budget item is servicing the debt. Curious about the other three?

  • Medicare/Medicaid
  • Social Security
  • Defense/War

So, even though government debt is high, as long as investors are willing to keep lending money, the U.S. will always have someone else to borrow from. It’s kind of like robbing Peter to pay Paul, but at least everyone’s getting their money back. For now.

You can buy Treasury Notes in terms of 2, 3, 5, 7, and 10 years. Treasury Bills are offered in terms of less than a year or 20- or 30-year terms.

Pro Tip: Though this investment vehicle is relatively safe, yields are at an all-time low. With the uncertainty in the market, you might not want to tie up these funds if there’s a better opportunity elsewhere.

Corporate bonds

If you’re leery about loaning money to the government, consider loaning money to corporations instead.

The biggest and smartest companies in the world use debt to fund growth and expansion.

AT&T, Ford, Apple, Amazon, Microsoft, and Pfizer all have debt in the billions of dollars. That’s correct–billions.

Corporate bonds pay significantly more than government bonds, and they’re nearly as safe. The chance of Apple defaulting on a loan seems incredibly unlikely (though not impossible).

Pro Tip: Right now, Worthy Bonds is offering a whopping 5% on bonds with a minimum $10 investment. This avenue is relatively safe because each loan is asset-backed and secured by inventory. This means that even if the company defaults, you’ll get the lion’s share of your money back through liquidation. I love Worthy because many of the borrowers on the platform are small business owners, not Wall Street wolves.

Read More: Worthy Bonds Review – A Worthy Investment for Everyone

Preferred stock

If you like the security of a bond, but want a higher return, consider preferred stocks.

Preferred stocks pay monthly or quarterly dividends measured as a percentage of their earnings. With preferred stock, that amount is fixed at the rate it was when you purchased the stock, even if the company’s income falls. This gives you an extra layer of security.

In addition to that income, you could also benefit from stock price appreciation.

There are multiple types of preferred stocks, as well. You can choose from those that will “pay you back” any missed dividends payments, or choose a type called “participating preferred” that pays higher dividends when the company is doing well.

Pro Tip: Though you can buy preferred stock from any broker, I like E*TRADE. It has one of the best platforms for providing real-time information. Whether you’re about to pull the trigger on your first trade, or you’re a seasoned investor, E*TRADE is a winning platform that’s full of useful data that’s easy to read.

Plus, if you’ve got a large nest egg established, they’re offering a bonus of up to $2,500 when you open and fund a new account. Who doesn’t like free money?

Read More: E*TRADE Review: Is E*TRADE the Right Platform for You?

Dividend-paying stocks

There’s a hidden benefit to buying dividend-paying stocks other than just pocketing some extra cash each quarter (or smartly using those dividends to reinvest in the stock).

Companies that pay dividends are often giving the market a strong signal that they’re on stable ground and in it for the long haul. As a result, you can reasonably expect a steady dividend income and a relatively stable stock price.

There are, of course, exceptions. For example, even though Apple could be considered a mature company, they are still in growth mode. Yet, they manage to be one of the highest dividend payers, paying out over $14 billion in the last 12 months.

Pro Tip: There are theories that companies that pay dividends end up having a lower stock price. The rationale is that the markets are logical, and they subtract the expected dividend payments from the stock price, creating a zero-sum game.

This is certainly possible, and the best way to find out is to compare companies in the same industry with similar revenue, profit margins, and operations. If one is paying dividends and the other isn’t, is that change reflected in the stock price?

As you can imagine, this process would be quite laborious, and you’re still left with nothing more than an educated guess. That’s why I like You Invest by J.P. Morgan. As long as you’ve got a balance of over $500 and you’re willing to pay a 0.35% advisory fee, you can get some real-world answers to your financial questions.

Mutual funds

You’ve probably heard that one of the best ways to minimize risk is to diversify your portfolio. Mutual funds allow you to do precisely that.

Mutual funds are a type of investment that contains a variety of assets. They could be in one asset class (for example, stocks) or a mixture of asset classes, including real estate.

The riskiness of a mutual fund depends on a few critical factors:

  • The underlying assets contained in the fund
  • The skill of the money manager who is managing the fund
  • The amount of fees you pay (the higher the fees, the lower your return)

Depending on market conditions, mutual funds can perform extremely well.

Keep in mind the expense fees don’t cover management fees, so make sure you check both before taking the plunge.

Pro Tip: One of the best ways to learn the tricks of the investing trade is through observation. If you’re not sure how to pick a mutual fund, start with a company like Betterment. This full-service financial institution won’t let you purchase an individual stock or fund.

Instead, you buy into their portfolio, which contains over 5,000 companies. By watching the experts at work at Betterment, you can potentially pick up some expertise along the way.

Another auto-pilot style option is Wealthfront. Its motto is, “We don’t believe in chasing the market.” The company’s chief investment officer basically wrote the book on passive investing. As a result, your money works automatically while you sleep. The folks at Wealthfront handle everything for you.

Blue-chip stocks

You’ve probably heard of blue-chip stocks before. These are the stable companies that are the cultural backbone of America. Disney, Coca-Cola, Intel, and IBM are all on the list.

Even though you’ve heard the term, do you know where the name blue-chip came from when naming stocks? The phrase was coined in 1923 when a stockbroker identified the highest-priced stock tickers and called them “Blue Chip Stocks,” after the highest denomination poker chip.

Blue-chip stocks have been around for eons, and have demonstrated time and again that they can survive recessions, depressions, natural disasters, and other unexpected conditions that would bring a weaker company to its knees.

These stocks have solid fundamentals and healthy ratios. They’re not a sure thing, but they’re the closest thing you can get when it comes to the stock market.

Pro-Tip: The only thing potentially more secure on the stock market would be investing in the Blue-Chip Index. This index tracks the blue-chip stocks, allowing you to own a piece of all of them.

The Dow Jones Industrial Average is a perfect example of a Blue-Chip Index. It tracks 30 major companies traded on the New York Stock Exchange. Though this index has gone up and down over the years, it has also grown quickly and steadily during the past several decades.

If you’re just getting started in the stock market, the best online brokerage for newbies, hands down, is Acorns. You can access it on your phone, allowing you to monitor your portfolio and make trades morning, noon, and night. With Acorns, you can fund your portfolio with as little as $5 and make your trade.

And, even better is their savings feature. You can choose to round up the change on your everyday purchases, and then invest the spare change into your portfolio. It seriously doesn’t get any easier than that when it comes to investing!

Peer-to-peer lending

The final investment opportunity on my list is the riskiest, but it can be both lucrative and spiritually rewarding.

With peer-to-peer lending, you loan money directly to individuals and small businesses that need a financial bridge to make ends meet or grow. Returns average a respectable 5%, and the lending service does all the work.

Pro Tip: Before you plunk your money down in a peer-to-peer lending service, make sure you thoroughly vet it. Here’s what to look for:

  • What is your average interest rate after fees and potential losses?
  • What is the default rate?
  • Do you get a choice in who you select for funding?
  • What is the minimum deposit?
  • How often do you get paid?

The biggest risk to this investment is default. It’s not unusual for borrowers with less-than-perfect credit to flock to peer-to-peer lending because the approval process is easier. Further, the interest rates are higher (sometimes as high as a credit card), which can further increase the burden of paying back the debt.

You can shield yourself from risk by doing some research about the borrowers before you approve them. You can also balance your portfolio with some riskier candidates to boost your returns. Just keep in mind that a riskier candidate means the higher the probability that you won’t get your funds back.

My favorite peer-to-peer lending service is LendingClub. Of every company I researched, LendingClub had the most favorable terms for investors, and it’s very transparent about the health of their borrowers.

Who are low-risk investments for?

Everyone can benefit from having investments that are classified as less risky than things like altcoin cryptocurrency or speculative real estate.

As an aside, visit yuno.finance to see what happens when someone creates cryptocurrency out of thin air, promotes the heck out of it on Reddit and forums, and then pulls the rug out from everyone. The coin went from one cent to $6, and it is now worth a fraction of a penny. And that’s being generous.

That particular crypto “investment” is an extreme example because it was a total fraud. Anyone who researched it would have hopefully realized it, but not everyone does due diligence, especially in the presence of FOMO (fear of missing out).

The moral of the story is that if you’re making riskier moves, you should also have a healthy percentage of your portfolio allocated to more stable vehicles.

Portfolio diversification can be your friend when one sector of the market, or a particular holding, tanks.

In reality, everyone should have at least some of their portfolio in low-risk investment vehicles. But, for the sake of helping you decide if you should concentrate on low-risk investments, ask yourself if you fall into one (or all) of these categories:

You are risk-averse

There’s a piece of wisdom that goes something like, “don’t invest what you can’t afford to lose.” If the thought of losing $100 in the stock market is scary or it would cause you to be late paying rent, then you’ll want to stick with the lower-risk investments at the top of my list.

You are new to investing

Being a savvy investor takes time. You have to learn about these asset classes, do research, and perform due diligence. If your first investments are risky, and they don’t pan out, it could discourage you from moving forward in the future.

I recommend starting slowly with less risky investments as you gain experience and build confidence. You can always graduate to riskier plays later.

You’re investing for the short-term

If you’re just looking for a temporary place to park your money that’s better than hiding it under the mattress, then finding a low-risk investment vehicle can give you a modest reward for keeping your money somewhere else.

You are a young investor

They say that youth is wasted on the young, and that sure is the truth! When you’re young and feeling free, investing for retirement might be the last thing on your mind. But when you turn 40 or 50, you’ll start to panic if you’re not getting close to your retirement goal.

The absolute easiest way to grow your money is to start investing early. Again, even if your initial investments are small, it’s better than nothing.

Bottom Line

After the markets recovered from the Coronavirus shockwaves, things appeared to be steady sailing, despite dubious employment figures.

However, forecasts are predicting another crash, and we saw a glimpse of it in early September when the markets took a bit of a tumble.

If another crash is coming, then now is the time to familiarize yourself with low-risk investment vehicles. Sure, you can allocate some of your portfolio to riskier moves, but make sure you keep enough clothes on if the tide goes out and exposes your naked position.



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