To get ahead financially, we all know that you need to control your expenses, save as much salary as possible and stay out of debt. However, your savings alone can’t make you the next billionaire or guarantee your financial stability in the future. As such, investing your money is crucial towards achieving your financial goals. Nonetheless, there’s always the possibility of losing your money, so you need to be careful when choosing your investment portfolio.
While there are several similarities between the stock market and gambling, investors can find low-risk securities to diversify their portfolio. These low-risk investments in the securities market include:
- Treasury Securities
Treasury Securities are simply loans that the general public offers the government. The securities are sold through auctions, and their actual value depends on what the investors are willing to pay on that day. You can also buy them through some banks, stockbrokers and online marketplaces like TreasuryDirect.
In the U.S, there are three types of treasury securities, including:
Commonly known as T-bills, these are short-term securities which mature within one year. They don’t pay any interest, but they’re instead sold at a discounted price and redeemed at face value. That means your profit is the difference between the face value and the discounted price.
These are medium-term securities that mature between 2 to 10 years. Depending on the demand, their price can be higher or less than the face value, but they pay interest semiannually until they mature. Even better, you can sell the treasury notes before they mature, though you won’t get their full value.
These are long-term securities that take three decades to mature and pay interest every six months. Similar to Treasury notes, you can sell them anytime, but you might lose money from the sale. That makes them a poor choice if you’re going to need the funds any time soon.
- Money Market Funds
These are bond mutual funds that put your money in low-risk short-term securities like T-bills and municipal bonds. The fund attracted millions of investors in the 1980s, leading to the development of the money market accounts. However, an MMF isn’t the same as a money market account.
A money market fund is a security sold on the open market, though not backed by the FCID. As such, investors can buy money market fund shares through brokerage houses such as TD Ameritrade or Ally Invest, some large banks and mutual fund companies. The shares are liquid, so you’re free to sell them at any moment and get a same-day settlement.
Money market funds are safe investments since they only deal in stable, short-term securities. However, that doesn’t mean they’re risk-free. Their earnings are uncertain due to fluctuations in the interest rates, and the principal can lose value.
- Treasury Inflation-Protected Securities
Popularly known as TIPS, these are securities that guarantee you won’t lose money due to inflation. As such, your security principal will rise if the index goes up and go down when there is deflation. The movement affects the amount of interest you earn, but you’ll still get your money back in the end. As such, you’ll get either the original principal or the adjusted amount when it matures (whichever is larger).