Author: Rob Sevilla
Agency: Agape Insurance & Financial Group, Tupelo, MS
At Agape Insurance, we often ask our clients a simple question: “Does your portfolio keep you up at night?” If watching the stock market ticker gives you anxiety, you might need a different approach with low-risk options. We call it the SWAN Portfolioโ”Sleep Well at Night.”
This strategy focuses on low risk and capital preservation strategies. Instead of chasing aggressive returns, the goal is principal protection in retirement with these types of investments.
If you are looking for a way to grow your wealth without the stress, you need the right investment option. Below, we explore 5 low-risk retirement investments and options to help you build a fortress around your savings. These low-risk investments can help you generate retirement income while keeping your nest egg secure.
The Safest Investments: High-Yield Savings Account and Money Market Account
When looking for safest investments, cash is often king. While a traditional checking account pays almost nothing, a high-yield savings account or a money market account can be a better investment option.
A savings account is the bedrock of security. Because they are typically insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000, you generally cannot lose money. A high-yield savings account functions just like a standard savings account but pays a higher interest rate.
Similarly, a money market mutual funds account is a deposit account offered by banks. It often comes with check-writing privileges and pays a competitive interest rate. For the conservative investor, these are safest places to park an emergency fund or cash needed in the next 12 months.
Treasury Bills and Bonds: Backed by the Full Faith and Credit
For decades, the bond market has been the go-to for low-risk investment. Specifically, Treasury securities (like Treasury bills or notes) are considered some of the safest investments in the world because they are backed by the full faith and credit of the U.S. government.
When you invest in a Treasury bond, you are essentially loaning money to the government. In return, they pay you interest. Treasury bills mature in one year or less, making them a great short-term investment.
Another low-risk investment is the Series I Bond. An I Bond is designed to protect you from inflation. The interest rate on an I bond adjusts every six months based on inflation data. If you hold the bond for at least five years, you can cash it out with no penalty, preserving your original investment.
Bond Funds and Mutual Funds: Diversifying Your Portfolio
If buying individual bonds seems complex, bond mutual funds or a money market fund might be the best fit.
A money market fund is a type of mutual fund that invests in short-term, high-quality debt. Unlike a money market account (which is a bank deposit), a money market fund is an investment product. While technically an investment, it is very stable.
Bond funds allow you to own a basket of hundreds of bonds. When you invest in bond mutual funds, you spread out your risk. However, be aware of interest rate risk. When interest rates rise, bond prices typically fall. If you own a bond mutual fund, the value of your investment can fluctuate.
Bond funds are a staple in retirement planning because they usually offer a higher payout than a savings account. By adding bond funds to your portfolio, you add asset class diversity.
Annuities: A Tax-Deferred Investment for Retirement Income
For those seeking floor and ceiling investing, where you have a safety floor against loss but room for growth, fixed annuities are a powerful investment option.
An annuity is a contract with an insurance company. Like a savings account, fixed annuities offer a guaranteed interest rate. However, unlike a bank account, your growth in an annuity is tax-deferred. You don’t pay taxes on the earnings until you withdraw them.
Annuities are unique because they can provide guaranteed retirement income for life, addressing the risk of outliving your savings. For a risk-averse investor, an annuity acts as a “personal pension.”
While not every type of annuity is right for everyone, low-risk investment options like Fixed Index Annuities allow you to participate in market volatility upside without the risk of principal loss.
Building a SWAN Portfolio with the Best Low-Risk Investments
Your investment decision should align with your financial goals, time horizon, and risk tolerance.
To build a retirement portfolio that helps you sleep at night:
- Start with Security: Keep 6-12 months of expenses in a money market account or savings account.
- Add Income: Use bond investments or fixed annuities to generate steady cash flow.
- Consider Inflation: Use Treasury Inflation-Protected Securities (TIPS) or I bonds to ensure your purchasing power keeps up.
There are 7 low-risk investments often cited by experts: Treasury bills, money market funds, high-yield savings accounts, Series I bonds, corporate bonds, fixed annuities, and the Certificate of Deposit.
Low-risk investments to consider also include the Certificate of Deposit (CD). Like a bond, a CD pays a fixed interest rate for a set term. It is a safe investment for money you don’t need immediately.
Safest Options for Your Retirement Planning
At Agape Insurance, we know that retirement savings represent decades of hard work. You shouldn’t have to worry about stock market risk wiping it out.
Whether you choose to invest in a bond, open a high-yield savings account, or purchase an annuity, the best low-risk investments are the ones that meet your financial situation.
Low-risk investments can help you maintain your lifestyle without the stress. Investments can help you grow your wealth, but preservation ensures you keep it.
Rob Sevilla is here to help you review your investment strategies. We can look at your bond exposure, discuss fixed annuities, and help you find safe money places for your nest egg.
Call us today at 662.260.5188 to start building your SWAN portfolio.
Disclaimer: Agape Insurance & Financial Group does not provide investment advice or a recommendation regarding specific securities. Fixed Annuities are insurance products backed by the claims-paying ability of the insurance company. FDIC insurance applies to bank deposits, not annuities or mutual funds.