Have you ever heard of the bull statue on Wall Street? It’s there as a symbol of the power – and danger – of the stock market.
It stands tall and defiant, some people even think it’s there as a symbolic guardian of the financial processes going on all around it.
And then there was the little girl statue that got put up, looking it right in the eye, proving that women deserved a spot at the stock market too.
No matter the symbolism of the statues, there’s an element of risk when you’re investing on Wall Street.
If you’re just dipping your toe in the water of the market (or other investing methods) you’ll want to start with the safest investments possible.
Don’t know what those are? We do – read our guide below.
The Safest Investments Aren’t 100% Safe
Before we get started let’s touch on one thing: when you’re investing, there’s always a risk. No matter how safe an investment seems, you are never guaranteed payout or success. Investing in the stock market is similar to betting and gambling in that way.
It takes more skill than betting and gambling, but you’re still leaving a lot up to chance.
So when you see the term “safest investments” going forward, keep in mind that they’re what we consider the safest for your money but that they still involve risk.
There is no “safe” investing, just safer investing. Now that the boring stuff is out of the way, let’s get to the fun part: how to invest as safely as possible.
In terms of risk, we’ll start small and go big. Remember that when it comes to investing the rule isn’t always “the bigger the risk, the bigger the reward”, so dip your toe in the water before you make any high-cost purchases.
Technically when you set up a savings account (one that has a return) you’re investing in the bank. By having that savings account you allow the bank to rent your money, which they can loan out in small amounts to other people if they need to.
Unless there are withdrawal limits, you can still withdraw the entire amount, so them “borrowing” your money doesn’t do any harm.
In return for letting them rent your money, they pay you an interest fee. For savings accounts, it’s usually something low, like 1-3% a year. Still, if you put in $1000 at 3%, you’ll have earned $30 just for keeping that balance at the end of the year.
If you can keep that balance for 10 years, that initial $1000 becomes $1,343 – earning you almost $350. The more you invest and the longer you keep it in your account, the more you can earn.
Before you set up an account, shop around different banks and see which one offers the highest-yield or interest rate on your account. Some higher-yield accounts have more fees, but you’re making more in the long run, so it’s something you have to weigh yourself.
Saving Account Safety
As far as safety goes, this is about as safe as it gets. Always bank with a bank that’s insured and you should have no trouble getting your money when you need it. The only way your money wouldn’t be safe is if the banking industry went under like it did in 2008.
That’s unlikely with the aforementioned insurance in place, so this is officially as safe as it gets.
Cons of Using a Savings Account to Invest
Often the interest paid on your savings account is the same or less than the inflation rate. That means your money would be worth just as much in your checking account as it is in your savings account.
However, many banks offer fee-free savings accounts and have safeguards in place so you can’t easily spend your savings. If you’re someone who has trouble with budgeting, knowing that you don’t touch your savings (and that it’s earning money for you) can help.
Another very safe option (don’t worry – we’ll get to the stock market in a minute) are government-sponsored savings bonds.
All you need to do to get a savings bond from the government is sign up with a Treasury account and make an investment. The minimum for savings bonds is $25 and $100 for Treasury Bonds. You can swing that, right?
Safety of Bonds
The US Government has an excellent of paying its debts, at least on the national side. So as long as the government and the treasury stand so does the safety of your investments.
However – you’re paying a price for that safety. How much your bond earns is solely based on inflation and changing interest rates, so do your research before you set up an account.
As an added benefit, you don’t have to pay state income taxes on these investments, but if you live in a state with federal income tax, that still applies.
It’s been working for people for at least a hundred years, so taking out a few bonds with the government can’t hurt. Just don’t cash them in until they’re mature or you could lose what you initially invested!
A fixed annuity is riskier than a savings account/bond but less risky than investing in the stock market on your own.
When you invest in a fixed annuity, you’re paying an insurance company to manage your money and invest it for you, with a guaranteed return (in case it doesn’t go the way they planned).
These are one of the most popular ways Americans invest their money, as it’s more hands-off and allows the experts to do most of the work.
No matter how well your portfolio does, you get a fixed rate of return. The details of that rate depend on the company you invest with and what the market is like when you set up your account.
Safety of Fixed Annuities
Since someone else is investing your money for you, you’re giving up a certain degree of control. That said, the companies that offer these products are insured and regulated by the State, so even if the company goes under you’ll still get your money back.
Disadvantages of Annuities
Like most fixed investments (including savings bonds and accounts) there may be penalties for withdrawing your money before the “term” of the annuity is up.
The farther away you get from the deadline, the more money you stand to lose by withdrawing before the annuity is “mature” or finished.
One way to avoid that is to make sure you’re only investing money you can afford to spend. While you’re not technically spending your money with an investment, you are making it inaccessible for general purposes.
Yes – it’s possible to liquidate your assets, but that should be the worst-case last-chance option.
Working With a Wealth Manager
Finally, you can enter the stock market officially by handing your money over to a trusted professional called a wealth manager. Some people also call them financial planners and their involvement with stock will differ with their personal views.
These professionals will look at your current financial situation, make suggestions, and then invest your money as you see fit.
Again, you’re giving up control here by putting your hard-earned money in someone else’s hands, so there’s risk involved.
You also get the assumed risk of playing the stock market, but that’s part of the thrill.
Your financial planner will talk to you about the amount of risk you’re comfortable taking. They’ll then set up a strategy and a profile for you based on your answers.
You can come to them with suggestions of stock you’d like to invest in or let them do the groundwork. You should meet with them at least twice a year to keep tabs on your money and its progress.
Security of Working With a Financial Planner
Anytime you’re involving another individual with your money your risk goes up. That’s one reason it’s so important to vet your financial planner before you hire them and make sure they’re up to date on all their certificates, certifications and that they’re insured.
You are also relying on their skill level, so if they’re a beginner you may not get as good of results as you would with an expert. However, working with that expert would cost more.
No matter how you invest it all involves a little risk – that’s just how it goes!
The Safest Investments for You
At the end of the day, you’re the only one that can deem which of the safest investments above are right for you and your money. You may start with one of the safer ones and then move along when you have more money to invest.
Or maybe you’ll start with a financial planner and skip the other steps altogether. Whatever you do, make sure you have a financial institution that supports you.
We’d like to be that support, and you can learn more about our business, here.