As you near retirement age or the end of your savings goal, it is smart to have your money invested in high-yield, low-risk investments rather than risky investments, such as the stock market, which can drop suddenly and without notice. Low-risk investments are generally more liquid than high-risk options, meaning you can remove your money when you need to without a penalty.
Certificates of Deposit
Certificates of deposit (CDs), traditionally offer investors an interest rate that is higher than the rate offered by a savings account. Since the money placed in a CD is usually insured by the Federal Deposit Insurance Corporation (FDIC), you can trust that it will not lose value over time. The rate of return for a CD may depend on the length of time until it matures. For example, a five-year CD may have a higher interest rate than a six-month CD. One advantage to purchasing a six-month CD is that you will have your money back if needed after a short amount of time. If interest rates increase in that time period, you can renew the CD for a higher rate.
Blue Chip Stocks
The term "blue chip" refers to companies that have historically performed well and aren't likely to crash overnight or vanish suddenly. Think of the brands that you encounter daily and you're likely thinking of a few blue chip stocks. Blue chip stocks usually pay a dividend to their investors each year. In some cases, the yield can be higher than that offered by Treasury bonds, according to James K. Glassman of "Kiplinger's Personal Finance."
Treasury Inflation-Protected Securities
Treasury inflation-protected securities (TIPS) are offered by the U.S. Treasury Department. The principal of TIPS rises with inflation or falls with deflation. Even if the value of the security decreases, you will receive at least the amount for which you purchased it when it matures. You will most likely earn money on TIPS, even in times when interest rates are low, as their value is adjusted along with inflation. Since you will never receive less than what you spent, it is a low-risk option.
Low-risk investments may not be the best option for you. In times when interest rates are low, you will not earn a high rate of return on an investment such as a CD or TIPS. If you are long ways away from your savings goal — just starting your career, for example, or beginning to save for college for an infant, it may be in your best interest to try high-yield, high-risk investments. You may lose some money with that approach, but you are more likely to earn money than if you stick with low-risk investments for your entire career.
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