10 Best Low-risk Investments In Retirement

Sep 17, 2020 05:45 AM ET
10 Best Low-risk Investments In Retirement

People spend a lot of time in their retired lives. These golden years are definitely something to look forward to, but it also poses the challenge of saving enough to last through that life. However, given the present condition of the world economy, now ravaged by Covid-19, many people are wisely looking to stick to stable investments with low risks. In this guide, we go through 10 investments for retirees to help them get good returns without much of a risk. 

1. Bonds

Bonds are basically representations of debt. That means if you have a bond, someone owes you money and you are also liable to get interest on it. Retirees with a well-diversified portfolio can gain much from bonds, such as the ones provided by government agencies, financial institutions, and the federal government. These make up for a reliable source of income in retirement and a good way to assimilate them into one’s portfolio is by building it up with bonds of varying maturities.   

2. Dividend-paying stocks

One of the safest investments is in stocks that pay dividends since they limit the volatility of the market. Even though they still feel some impact of market fluctuations, they are considered safer investments than high-growth stocks, venture capital, or precious metals. Because these stocks tend to be more mature and stable, they not only pay dividends but also the possibility of appreciation of stock value.  

3. Home equity

This is a good backup plan for retirees to tap into your home equity. One can either sell one’s house or take a home equity loan. However, one shouldn’t depend too much on the value of one’s residence, especially not to fund retirement. The home values are susceptible to crashes which could reduce the equity significantly. Nevertheless, this is an option that can be considered if other things don’t pan out well. 

4. Real estate investment trusts (REITs)

Even if you aren’t interested in being a landlord, you can still consider investing in equity REITs. These are involved in purchasing, selling, and managing commercial properties that include offices, malls, and apartment buildings. 

One can purchase REIT shares through security exchanges or via mutual funds, and they frequently pay quarterly or monthly dividends. Along with bonds and global stocks, diversification in real estate has benefited investors greatly. Through them, they have access to the highly liquid residential as well as commercial REITs. 

5. Savings accounts and CDs

Savings accounts and CDs

One noteworthy loss-proof investment is bank CDs that are backed by FDIC accounts. For purposes of generating income, there is nothing as safe and reliable as these certificates of deposit. When one has a CD, the bank will pay a set of interest over a specified time period, that is, if one doesn’t take out the money early. Even though this option may not look attractive when you’re being paid 2% or even less, when the rates rise, it sure does seem like a wise investment. 

6. Peer-to-peer lending

Also abbreviated as P2P, this form of investment has grown and matured ever since its inception in 2005. P2P lending matches investors and borrowers online which is beneficial to both parties. Simply put, it is taking the bank away as the intermediary when lending money. 

Many of these, especially Lending Club and Prosper – which are the two largest platforms for P2P – provide huge rates of interest, much higher than what one can get on one’s stock market investments. On the other hand, the risks and the rewards depend on who you’re lending to. 

7. Annuities

An annuity is a contract between you and an insurer and is as predictable and low-risk as your pension or your Social Security. These come in various forms, but the common factor is a guaranteed payment at a particular rate. 

When considering annuities as an investment option, one should pay good attention to any commissions or fees that it charges, since they tend to be on the higher side. They may also have many complicated conditions, which is why one is advised to understand it fully before investing. Do also take note of how your tax liabilities will be changed with annuities.  

8. U.S. Treasury notes

One can get better returns on U.S. Treasury notes than one can on CDs or market funds. Since they have long-term securities, they pay a better interest rate and are a good source of income in retirement. 30-year treasury bonds provide more than 2.5% returns, while those that mature in less than 10 years provide almost 2% returns. 

9. Mutual funds (managed accounts)

A fund where investors mutually pool money together is called a mutual fund. These can be used to buy assets like bonds or stocks. They provide portfolio diversification cheaply since the risk is spread across many investments. Though the money remains accessible to all, one has to make a contribution of at least $5000.  

10. Exchange traded funds

Exchange traded funds

These are collections of securities that are traded normally like stocks on the exchange. For retirees, this is a low-cost investment that allows them to get exposure to the underlying market index while diversifying their portfolio.

They are considered to be more liquid and cost-effective than even mutual funds. Since there are numerous stocks, numbering in the thousands sometimes, across different industries, the risk factor remains low and the returns are, for the most part, reliable. 

The Bottom Line

When considering which investment to make to provide for your retirement, there is no ideal asset that will put you on your path. The best thing to do is to diversify one’s portfolio and ensure that one invests in low-risk assets. 

Long-term investing doesn’t stop with retirement, nor do one’s savings just because one has stopped saving after retirement. The 10 investment strategies mentioned herein should sufficiently keep your portfolio safeguarded and providing good yields.


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