Which Investment Type Typically Carries The Least Amount of Risk?

It's no secret that the stock market is a risky investment. But did you know that some investments are riskier than others? When it comes to investments, there are a lot of options to choose from. Each type of investment has its own unique set of risks and rewards. So which investment type typically carries the least risk?

There are a few reasons why an investor would want to know which investment type typically carries the least risk. Firstly, when an investment is risky, there is a higher chance that the investor could lose money. Secondly, if an investment is too risky, the investor may not be able to sleep at night knowing their money is in danger. Lastly, when an investment is too risky, it can prevent the investor from reaching their long-term financial goals.

In this article, we'll take a look at which investment type typically carries the least risk, and why. We'll also discuss how to choose low risk investments that are right for you. So read on to learn more!

1. Savings accounts

man counting pennies

What is a savings account?

A traditional savings account is a type of bank account that allows customers to make low risk investments by depositing money and accruing interest on that deposit. Savings accounts are typically offered by commercial banks, though some credit unions also offer them.

Customers can typically withdraw or transfer funds from their savings accounts at any time, though there may be restrictions on the number of withdrawals or transfers they can make in a month.

Why is a savings account low risk?

Savings accounts are a great way to make sure your money is safe and secure. Unlike other investment options, a savings account has very little risk associated with it. This makes it a good option for people who are new to investing or who are looking for a low-risk investment option.

Savings accounts with low interest rates may not offer the best return on your money, but they are a much safer option than high-interest savings accounts for risk averse investors.

There are several reasons why savings accounts are safe. Firstly, savings accounts are insured by the FDIC. This means that if the bank where your account is held fails, your deposits are insured up to $250,000 per account. Secondly, most banks offer a guarantee on deposits. This means that even if the financial institution fails, you will be able to get your money back, making it lower risk

So if you're looking for a safe and secure low risk investment option, a savings account is a good choice. They can also be a good place to store your emergency fund to prevent default risk.

2. Certificates of deposit (CDs)

certificate of deposit

What is a certificate of deposit?

When it comes to investing, there are a variety of different options to choose from. One popular option for investors is a certificate of deposit, or CD. A CD is a savings account that usually offers a higher interest rate than a regular savings account.

There are two main types of CDs: fixed and variable. With a fixed CD, the interest rate is guaranteed to stay the same for the term of the CD. With a variable CD, the rate may change over time.

Why is a certificate of deposit safe?

One advantage of a CD is that it is a low-risk investment. The money is locked in for a set amount of time, so there is no risk of losing it if the stock market crashes or the economy takes a downturn.

Another advantage of CDs is that they are easy to manage. You can't withdraw money from them without penalty until the term is up, so you don't have to worry about making rash decisions with your money.

Overall, CDs are a safe and easy way to save for your future. They offer predictable returns and are ideal for investors who want to avoid high risk.

3. Money market accounts

coins next to a chart of cumulative returns

What is a money market account?

Money market accounts are a type of savings account that offer stability and liquidity. This makes them an attractive option for investors who are looking for a safe place to park their money.

Why are money market funds low risk investments?

Money market funds typically have lower interest rates than other types of savings accounts, but they also offer less risk. This makes them a good choice for people who are looking to save for short-term goals or who want to avoid the possibility of losing money if the stock market crashes.

If you're interested in opening a money market account, there are a few things you should know:

First, you'll need to decide how much money you want to deposit. Money market accounts typically have minimum balance requirements, so you'll need to make sure you have enough money to meet those requirements.

Second, you'll need to choose an account that offers the rate and features you're looking for. There are many different money market accounts available, so it's important to compare your options before choosing one.

Finally, you'll need to decide how you want to access your account. Some money market funds can be accessed online, while others require that you visit a branch in person.

4. U.S. Treasury securities

the US treasury building

What is a US treasury security?

These are considered one of the best low risk investments an investor can make.

This is because they are backed by the full faith and credit of the United States government, which has never failed to repay its debt.

Why are US treasury securities low risk?

In addition, they can offer a variety of maturities and rates of return, so investors can choose the investment that best suits their needs. These could include an asset class like government bonds, treasury inflation protected securities, or treasury notes.

Finally, they are are exempt from state and local taxes, making them even better investment opportunities.

U.S. Treasury bills are often referred to as "risk-free" investments because of the guarantees they offer. However, this does not mean that investing in them is without risk.

Investors need to be aware of the potential for inflation and interest rate risk when considering any investment.  

Inflation risk is the chance that the purchasing power of your investment will decline over time, while interest rate risk is the chance that an interest rate rise will cause the value of your investment to fall.

Despite these risks, They can still be an attractive option for investors who are looking for a safe place to park their money.

5. Municipal bonds

municipal bonds on paper

What is a municipal bond?

Municipal bonds are a type of bond that is issued by a state, local government, or territory. These bonds are considered to be low-risk investments because the municipality has a strong credit rating. This means that the municipality is likely to repay its debt in full and on time.

Municipal bonds typically pay a lower interest rate than corporate or Treasury bonds. However, investors who purchase municipal bonds are exempt from federal and state income taxes. This can make municipal bonds a more attractive investment for some investors.

Why are municipal bonds low risk?

Since municipal bonds are considered to be low-risk, they are a popular choice for investors who are looking for a safe investment. Municipal bonds can be purchased through brokerage firms or online platforms. Investors can also purchase municipal bonds directly from the issuer.

Municipal bonds are a type of fixed-income security. This means that the interest rate on the bond is set when it is issued and does not change over time. The principal, or face value, of the bond is also set at issuance and does not change.

One disadvantage of municipal bonds is that they typically have a lower interest rate than other types of Bonds, like corporate or Treasury Bonds. Another disadvantage is that investors who purchase municipal bonds may be exempt from federal and state income taxes, which can make these investments less attractive for some people.

6. Corporate bonds

stock market screener showing bonds increasing

What is a corporate bond?

When you invest in a corporate bond, you are lending your money to a company in exchange for regular interest payments. In most cases, the company will repay the full principal amount of the bond when it matures. This type of investment is considered less risky than investing in stocks because a company’s failure to make interest payments or repay the principal amount of the bond would be less likely to cause large losses for investors.

Why could corporate bonds be risky?

However, it is important to remember that bonds are still subject to credit risk, which is the risk that a company will not be able to make interest payments or repay the principal amount of the bond. This type of risk is usually lower for bonds that are issued by large and well-established companies.

Investing in bonds can be a good way to diversify your investment portfolio and earn a higher rate of return than you would on a savings account. However, it is important to remember that bonds are subject to market risk, which is the risk that interest rates will rise and the value of your bond will fall.

7. Bond mutual funds

illustration of man looking at mutual funds

What are bond mutual funds?

Bond mutual funds are index funds that pools money from many different investors and invests it in bonds. Bonds are debt securities, which means they’re essentially IOUs. When you buy a bond, you’re lending money to the issuer, who agrees to pay you back the principal plus interest over a certain period of time.

Why are bond mutual funds low risk?

Investing in bond mutual funds can be a great way to diversify your portfolio and get exposure to a variety of different bonds. And because bond prices tend to move in the opposite direction of stock prices, they can help hedge your investment portfolio against market volatility.

But there are some things to keep in mind before investing in bond mutual funds. First, they come with risk. Like all investments, there’s no guarantee you’ll make money on your investment.

Second, bond mutual fund companies can be subject to interest rate risk. This is the risk that rising interest rates will cause bond prices to fall.

8. ETFs that invest in bonds

representations of ETFs inside cogs

Why do ETFs that invest in high quality bonds have less risk?

Investing in ETFs (like some index funds) that invest in bonds can have less risk for an investor and can be one of the best low risk investments for traders with a low risk tolerance.

When the market is doing well, bond prices generally go down. This is because investors are selling their bonds to invest in stocks. This makes sense because stocks are a more risky investment than bonds.

When the stock exchange is doing poorly, bond prices generally go up. This is because investors are selling their stocks and buying bonds. This makes sense because when the stock market is doing poorly, stocks are a less risky investment than bonds.

ETFs (or exchange traded funds) may also one of the better investment opportunities as they may often pay dividends, which can provide you with a lower risk by decreasing your initial investment.

This means that when the stock market is doing well, you will lose money if you invest in a bond ETF, and bond ETFs can become high risk investments. However, when the stock market is doing poorly, you will make money if you invest in a bond ETF. So, by investing in a bond ETF when the market is doing poorly, you can make money while taking less risk.

Some examples of relatively low risk varieties of ETFs that invest in bonds with a proven track record are the Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG).


It's important for investors to weigh all their options and understand which investment type typically carries the least risk before making a decision. While some high risk investments may carry more risk than others, it's important to remember that no investment is ever without risk. By understanding the different types of risks involved with various investments, investors can make more informed choices about where to put their money and how much risk they're willing to take on.

Which investment type typically carries the least risk?

In general, low-risk investments are those that offer relatively stable returns with little chance of major losses. These types of investments are ideal for investors who want to avoid taking on too much risk or who don't have the time or knowledge necessary to research individual stocks or bonds.

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