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A high return is what every investor is after, but it’s not the only factor that matters. When reviewing investments, professionals look not only at absolute return potential but also something called “risk-adjusted return.” The bottom line is that not all returns are created equal, and smart investors look to invest where they’re getting the best value for the risk that they are taking on — even if that means accepting lower returns.
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Through that lens, you might prefer an investment that pays just 2% a year over one that’s returning 20%. Why? Because if that 2% return is guaranteed, such as via a U.S. Treasury, but the path to the 20% return involves the risk of losing 40%, that steady 2% could be a better value over time, based on its low risks — especially for a risk-averse investor.
For the individual investor, this balance is all the more important. If you understand how comparing investments requires looking at both returns and the risk with equal weight, you can understand how even a tiny return can be a great deal if the investment is really risk-free.
9 Safe Investments With High Returns
Here’s a closer look at some of the safest investments with the highest returns. You’re unlikely to generate exponential growth with these, but you’re even less likely to lose the money you’re relying on to keep you and your family secure.
1. High-Yield Savings Accounts
The high-yield savings account is pretty much the gold standard of safe investments, offering you strong returns given the total absence of risk. The money you have stashed in almost any bank is insured by the Federal Deposit Insurance Corporation, meaning the government will make you whole on any losses up to $250,000.
One of the few catches with high-yield savings accounts is that the rate can change in response to current market conditions. When rates are falling, as they have been the past few years, payouts can seem not as attractive.
Currently, top high-yield savings accounts pay a range of interest rates, from 0.45%-0.61%, which is a far cry from the 2%-plus of just a few years ago. However, with the national average savings rate hovering at just 0.06%, high-yield savings accounts are still a great deal.
Although perhaps not as exciting as potential stock market returns, high-yield savings accounts are very liquid investments — meaning it’s easy to access without penalty …….