Investing Your Money: 4 Low-Risk Ways to Grow Your Money As A Beginner
4 min. read
By: FCU Team
To enjoy a comfortable future, investing money is necessary for the majority of people. When you invest, you can provide yourself with another source of income, help pay off student debt, or save up for a down payment for your first home. In short, investing will help you grow your wealth and meet your financial goals.
However, it's also important to recognize that when you're facing potential gains, you can also have risk. Markets can be extremely volatile, especially if you don't take a long-term approach. Add in unforeseeable circumstances, like a pandemic or natural disaster, and risk becomes impossible to avoid. For those reasons, investing money can often seem challenging and overwhelming. Many people don't feel confident enough to invest their own money so they simply let it sit in a savings account.
However, we're here to tell you that growing money is actually simple and easy, so long as you know what you're doing and get some help along the way. We'll walk you through how to invest money so you can strengthen your financial future.
High-Yield Savings Accounts
You’re likely already familiar with savings accounts and probably already have one. With a traditional savings account, your money gains interest over time but it’s usually a very small amount, like a few cents each year. At the same time, savings accounts carry the lowest amount of risk of any investments since you’ll never have to worry about losing money. If you’re looking to limit your exposure to risk as much as possible, look for a savings account with a higher interest rate to maximize your investments. High-yield savings accounts can help your savings grow a little bit faster while keeping your money safe.
Certificates of Deposit
A Certificate of Deposit is similar to a savings account, but instead of having access to the money in your account, you agree to keep your money invested for a specific amount of time. In exchange for agreeing to not touch the money you invested, your bank will give you a higher interest rate. CDs are federally insured and come with specific dates that can range from a few months to several years.
If you absolutely need to withdraw money from your CD you can, but you will have to pay a penalty. Therefore, it’s best to make sure you are secure enough financially to leave that account alone once you set it up. When you have a CD, your bank will pay you interest at regular intervals. Once the deposit has “matured”, or reached the end date you agreed to, you'll get your original or “principal” investment back as well as your earned interest. Because they offer higher payouts and are fairly safe, a CD can be a great choice for someone who doesn't need income immediately. It should also be noted that when interest rates fall, investors will earn less when they reinvest their money in new CDs.
Money Market Accounts
Although similar in nature to savings accounts, money market accounts have higher interest rates and allow you to access funds easily with a debit card or checkbook. However, most money market accounts only allow you to make six fee-free withdrawals per month. These accounts also typically have higher minimum balance requirements, meaning you must have a certain amount of money in your account at all times.
Because these accounts earn higher yields and are relatively liquid (meaning you can access the money easily), they can make excellent options for a person's emergency savings. These accounts are great for beginning investors who are trying to grow their money while also maintaining some access to their funds in case of an emergency. The biggest threat to these accounts is inflation. If the inflation rate exceeds the interest rate that you earn on the account, your purchasing power could diminish.
The American government issues three different kinds of securities in order to raise funds to pay off its debts and expenditures. These investments are some of the safest investments, as they protect your principal investment.
Treasury bills mature for a year at most and don’t technically pay you interest. Instead, they’re sold to you at a discount. Once they get to their maturity date, the government will pay you the entire value of the security.
Treasury notes can be issued in terms ranging from two to ten years. People who hold onto treasury notes will earn fixed interest payments every six months. They'll then be paid the face value of the note when it matures. Depending on demand, the price of a treasury note can be less than, equal to, or greater than its face value.
Treasury bonds are securities that are issued with 20-year and 30-year maturities. They pay interest every six months and they pay their face value once they mature. These bonds are sold at auction throughout the year and the yield and price are determined at the auction.
All of these kinds of securities are offered in multiples of $100. And because these securities are backed by the full faith and credit of the U.S. government, they're considered to be essentially risk-free. With that said, the value of these securities can fluctuate greatly depending on if interest rates are going up or down.
The Importance of Investing Money
Everyone can benefit from investing money. The important thing to do is recognize how much access you need to your money and what your level of risk tolerance is. If you’re looking for low-risk options that still help you get further along on your goals, these four options are great for investing beginners. Once you get the hang of these lower risk investments, you can make more educated and confident decisions about your financial future and explore other investment options such as the stock market or real estate.