11 Safest Investments to Buy at Any Age!

Whenever you research how to start investing, you’ll probably be told that investing always has some risk. However, some investments are riskier than others, so which are the safest investments?

Due to these investments being safe, there is often a trade-off. Typically, these investments will produce lower-than-average returns, however, have a very slim chance of you losing your money.

Many more seasoned investors may choose to hedge their bets. They may have a half-safe portfolio and a half-risk portfolio, this way they have the best of both worlds so to speak…

11. Mutual Funds

Investing in individual stocks, bonds, real estate and other investments can be extremely risky. Whilst many are great, there are as many (if not more!) that will undoubtedly lose you all of your money!

From a safety point of view, this may swear you off investing for life. But at the same time, you know that you need to start investing in order to build wealth and/or be able to retire.

This is where mutual funds come in. Essentially, mutual funds pool investor’s money together and invest in all manner of things. At the end of each year, the profits from rent, dividends and interest are paid to the investors.

Mutual funds benefit from having professionals manage the accounts. These are professionals who have had decade’s worth of experience in the market, which reduces the risk of buying bad investments.

Assuming that these professionals ever do make a bad investment, there is often enough money in the fund to absorb the loss. This loss is then distributed to every investor, who each only feel a slight pinch.

However, mutual funds also have a dark side: They’re outdated. Typically, mutual funds have extremely low returns (at least compared to other safe investments) as well as having extremely high fees too!

10. Index Funds

For some, mutual funds are too broad, hence their high fees and low returns. In many ways, mutual funds and index funds are very much alike. However, there’s one main difference.

Mutual funds invest in just about everything, whereas index funds solely invest in stocks.

Index funds are often made up of a particular kind of stock. For instance, the famed S&P 500 is made up of the 500 largest companies on all US stock exchanges, whilst the Russell 2000 is made up of the 2000 smallest companies on all US stock exchanges.

Although it depends on the industry, you can also buy industry-specific index funds too. Some of the more popular ones include the media, finance and/or construction industry index funds.

The reason index funds are so safe is because they invest in a wide range of stocks. Unless it’s an industry-specific stock, index funds cover a wide range of industries, this means that if one industry takes a hit, the rest absorb the loss.

If one particular company goes under, it is replaced by another company. Often, this makes the index more valuable (as the company has likely been failing for years), if not, the value of the other companies will likely absorb any losses.

9. REITs

Alternatively, if mutual funds or stocks aren’t your thing, real estate might be! However, investing in individual pieces of real estate is extremely risky.

There’s always a possibility it may burn down, be trashed by an angry tenant or get destroyed by an act of God nobody had foreseen. This loses all of your investment, the direct opposite of what you wanted to do in the first place!

However, institutional investors have devised something similar to index/mutual funds. However, instead of buying just about everything or just stocks, these Real Estate Investment Trusts (REITs) solely buy real estate.

Typically, REITs pay more than mutual or index funds per year, however after factoring in things like fees and inflation, REITs have lower ROIs on average.

With that being said, there are a few REITs that do offer more substantial ROIs. With that being said, they are riskier, with many having collapsed if the price of real estate goes down suddenly.

However, the downside is that the industry itself is only relatively new. As such, it isn’t that regulated, which has led to a number of high-profile scams (although most REITs do follow the same practices as mutual/index funds).

8. Government Bonds

For many countries, tax revenue does not cover the entire government’s operations. Instead, they need to borrow money in order to fund the government’s operations.

There are several ways a government could do this. Whilst the majority of this additional money is borrowed from other countries and the World Bank, a small portion of it is borrowed from the general population.

Most countries do this in the form of bonds.

These bonds are issued by the government, and will be honored regardless of the political or economic state of the country. The only way they may not be honored is if the country’s leadership is violently overthrown.

Generally, government bonds pay annual interest payments, which are usually below inflation. However, countries with a history of defaulting will pay higher interest payments in order to appeal to investors.

And the best part about this? The interest you earn is tax free, meaning that you can put all the interest you earn back into bonds, without having to worry about paying income tax, capital gains tax or whatever on it!

The value of government bonds also increases quite steadily over time. This makes them perfect to own for long periods of time, which makes them especially popular with retired couples.

7. Municipal Bonds

It’s not just national governments that use bonds to raise finance. Local governments do the same. This is because local tax revenue is often quite low, and local governments are especially inefficient.

Local governments don’t really have the financing available that national governments do. This is because much of the time, the majority of local governments’ revenue is made from a particular company and/or industry.

For most lenders, this is quite risky. This is because that the one company can quite easily go out of business, or that industry could experience a rough period, thus impacting the entire local area.

As such, municipal governments are forced to rely on bond revenue much more than other types of governments. Due to this, the vast majority of government-issued bonds printed each year, are municipal bonds.

The overwhelming majority of these bonds are considered by experts to be a little risker, albeit not by much. This is because there is a slightly higher chance they’ll default, given the sheer amount of bonds they issue.

As such, they pay slightly higher interest payments, in order to be more appealing to investors. With that being said, this is only by a little bit.

6. Treasury Bonds

Remember earlier when I spoke about government bonds? Well, the US Government doesn’t issue their own bonds, like say, the UK or France or Spain will. The US Treasury Department does.

For all intents and purposes, Treasury Bonds and a UK Government-issued bond (known as a gilt) are exactly the same. The only differences between the two is: 1) The country who issued it and 2) The annual interest payment.

As the US is the most powerful economy on the planet, it is seen as pretty much the safest place to invest your money. It has a long history of political, financial and (mostly) social stability.

Due to this, US Treasury bonds are highly sought after, as the US has never defaulted on its national debt, and has a strong enough economy to make this highly unlikely.

Surprisingly, at least compared to the bond interest payments from most developed countries, the US Treasury bond still has a fairly high return at 1.25% per year (as of the time of writing).

However, Treasury bonds (as with other types of bonds) rarely outpace inflation. This, in essence, means that you will potentially become poorer over time, or at least, lose money over time!

5. TIPS

With that being said, the US Treasury does understand this. As such, they also offer what it calls, TIPS (Treasury Inflation-Protected Security) bonds on top of their regular US Treasury bonds.

Essentially, these are regular US Treasury bonds, but are designed to combat inflation. To do this, the principal of the bond increases in value on par with inflation.

For instance, if you bought a TIPS worth $10,000 and held it for 30 years, with each year having 3% inflation, your bond would be worth $24272.62 by the time you cash it in.

TIPS also pay an annual interest payment. Unlike US Treasury bonds that are fixed at a given percent when they are issued, the TIPS’ annual interest payment varies with the adjusted principal of the bond.

And here is where the majority of the risk comes from. This variable interest payment is set by the US Treasury each year. Some years, the payment is extremely generous, whilst in other years, not so much.

Assuming that we have another recession like the Great Depression of the 1930’s or the Great Recession of the late 2000’s and early 2010’s, you could potentially have a series of bad years, and thus, actually end up worse off!

4. Corporate Bonds

If government-issued bonds aren’t really your thing, perhaps corporate bonds are. Government and corporate bonds are basically the exact same, with the only difference being that one is issued by a government, and the other, by a corporation.

For many corporations, they don’t want to issue more stock, to raise capital. Instead, they choose to issue bonds instead. These can be traded on the open market, just as corporate stocks can be.

As bonds are technically a form of debt, if the corporation goes out of business, administrators are legally obliged to pay off the company’s debt first, before paying shareholders.

Of this, corporate bond holders are among the first to be settled with. This is because, alongside bank credit, they are many corporations’ largest source of credit, which is therefore paid off first.

As with other types of bonds, corporate bonds holders are paid a series of interest payments. These interest payments are similarly fixed, and are usually issued once per year, however, some bonds pay more or less regularly.

However, corporate bonds are a little riskier (although not by much) than government-issued bonds. As such, corporate bonds pay slightly higher interest payments than government-issued bonds do.

3. Money Market Funds

Remember how I said that mutual funds, whilst among the safest investments in the world, have become outdated? Technically speaking, that’s not true…

You see, there is a type of mutual fund called a money market fund. These are not outdated, but work on the same principals that Sir John Templeton used to create the first mutual funds.

However, instead of buying just about anything as regular mutual funds do, money market funds only buy certain assets. Usually, this is in the form of short-term securities such as the aforementioned US Treasury Bond.

On top of all of this, their annual dividends payments are usually on par with, or slightly above the average for stock dividends. Naturally, this makes it rather appealing to many investors.

With that being said, money markets sacrifice long-term returns in favor of short-term gain. In essence, this means that the funds don’t really protect you against inflation, meaning that you’ll need to invest in other assets that do…

Or you could just reinvest your money, which will (sort of) help.

Despite being heralded as one of the safest investments out there, due to the fact it’s supposed to be impossible to lose your money, a number of smaller-scale money market funds have lost their investors millions of dollars through poor investments.

2. High-Yield Savings Accounts

For many people, the whole reason they want to start investing is because saving accounts are a bad investment. Often times, their interest rates are much lower than the average 3% inflation.

This means that you are basically losing money over time.

However, most major online banks offer another kind of savings account, besides their standard one: High-yield savings account.

Typically, these high-yield savings accounts pay between 20 and 25 times the national average for standard savings accounts. Which not only beats inflation, but also provides a considerable ROI.

However, most high-yield savings accounts have a downside. Whilst every account is different, many don’t let you withdraw your money for a set period of time.

For instance, some banks say you can’t withdraw your money for the first six months. Some others have a limit on how much you can withdraw per month, based on what you put in. A few have criteria to do with the amount you have to deposit each month

Alternatively, you could try your hand at playing both the FOREX and other countries’ interest rates, by setting up bank accounts there. However, this is more complicated (as you’ll need to know local laws and have an address there), not to mention risky.

1. Gold

It may surprise you, but gold is actually a fairly safe investment. Although it isn’t that popular among the richest investors, gold typically holds its value, often increasing in value year-on-year.

Generally speaking, gold is a great way to diversify your portfolio. You could purchase one or more of the aforementioned investments as your main investment(s), but have gold as something like a back-up.

You see, gold is great during a recession and/or market correction. This is because other more common investments such as stocks and real estate are down, with people taking their money and buying gold instead.

From my personal experience, gold doesn’t perform that well if you buy it for less than five years. However, if you are willing to hold onto your gold for, say, ten years, you’ll see tremendous returns!

Although past performance doesn’t indicate future performance, recent years in particular have seen a sharp increase in demand for gold. According to many experts, this demand is expected to remain for many years.

If you don’t have enough money to invest in gold, you could instead invest in silver. All of the aforementioned points are the same, however, silver is cheaper per gram/ounce, therefore being more accessible to some investors.

Which are your favorite safest investments? Tell me in the comments!