In today’s landscape, saving can feel like a worthless endeavor because of how low interest rates are for consumers. They are so low that as a saver, you are yearning for the days when rates were at least one percent!
Still, despite rates being near zero, you may not want to buy a ticket and seat yourself front row at the roller coaster ride that is the New York Stock Exchange. You might have seen too many crashes in your lifetime, like the dot-com bust, the housing bubble, and the COVID-19 collapse. It is perfectly understandable that you may want to experience minimal risk when it comes to saving your hard-earned money.
Risk-averse saving does not have to consist of stuffing envelopes or depositing money into a low-yield savings account. There are plenty of methods to explore for your financial gain, from CD laddering to corporate bonds to automatic savings programs.
But is there a savings method that allows you to maximize your savings and get the best returns, without a high level of risk? Yes, there are several of them, and they are tailored to the needs of individuals without a risk appetite. We have compiled a list of the top measures you can employ to increase your savings.
1. Automatic Savings Plan (ASP)
Set it and forget it?
For many consumers who do not have saving money at the top of their agenda, automating your savings can be the best way to ensure you are socking away funds for the future, whether for an emergency or retirement. Even for dedicated savers, automating your cash can be a fruitful endeavor.
One option at your disposal is to enroll in an automatic savings plan (ASP). Every financial institution offer this program to clients, but not everyone takes advantage of this helpful savings tool. Here is how it works: every week, month, or quarter, you have a specific amount of money transferred from your checking to a savings account of your choice.
Sounds simple enough, right? That’s because it is! Set it, forget it, and let your savings grow!
2. CD Laddering
Indeed, certificates of deposits (CD) no longer pay the level of interest rates as your grandparents may have benefited from. But they can still play a critical role in your finances, especially if you are not one to go full force into the financial market.
How could you give CDs a 21st-century update? Grab a ladder. CD laddering is when you put your funds into four- or five-year CDs that mature in one, two, three, four, and five years. So, your GIC investment should look like this:
- $1,000 in a one-year CD.
- $1,000 in a two-year CD.
- $1,000 in a three-year CD.
- $1,000 in a four-year CD.
- $1,000 in a five-year CD.
As each CD matures, you renew it as a four- or five-year CD. This gives you flexibility and allows you to take advantage of higher interest rates (whenever that happens!).
3. Change Checking Accounts
The money in your checking account is dead, as far as we’re concerned. It is not doing anything except paying your bills, and in fact this dormant money is losing value when you account for inflation!
Most people use their checking account to store cash and keep adding to the pile instead of using it to save more or invest. We get it: you probably want to have an emergency fund of accessible cash, and you perhaps want to apply the minimum amount in order to avoid paying additional account fees.
But your checking account needs a makeover. The solution? Ditch it and find something that gives you more options, including daily investment returns, like an all-in-one checking and investing account. This way, your money is not dormant, but rather actively working for you, at a level of risk suited to you, while still giving you the accessibility you need to withdraw funds and pay your bills.
4. Index Funds
After witnessing a meteoric ascent for many of the leading stock benchmarks, investors are excited over index investing. And why not? It is this type of passive investing that yields substantial profits.
Should you be an index fund investor? This is one of the easiest and safest methods of investing in the broader financial market for low-risk individuals. Ultimately, your returns would be similar to a broad market index, such as the S&P 500 or the Dow Jones Industrial Average.
5. Value Stocks with Dividends
The Walmart stock as well as McDonald’s stock have both been around for 40 years. Microsoft’s stock went public more than three decades ago. These value stocks have all provided consistent growth since they filed an initial public offering (IPO). What’s more, they also pay a dividend, and that is the key to value investing.
Some people sit on the sidelines because they fear losing their money overnight. But this is only true if you are putting your money in a flash-in-the-pan stock or partaking in something that is being pumped and dumped. If you invest in valuable companies that have provided consistent growth over a long period of time, you do not need to be worried about losing 100 percent of your capital after a single trading session.
6. Corporate Bonds
At the height of the coronavirus-induced market meltdown this past spring, the Federal Reserve announced that it would be purchasing corporate bonds to allow the private sector to focus on surviving and recovering from the financial crisis. This was unprecedented in U.S. central banking history since the Fed had never acquired corporate bonds.
The result? Corporate bonds soared on the news, making it an appealing investment option since they were unlikely to crash due to the involvement of the Federal Reserve.
Even without the central bank, corporate bonds are a safe choice for investors who do not have much of a risk appetite. To reduce your risk even further, look for corporate bonds from well-established businesses that mature in a couple of years.
Whether you consider yourself a low-risk or high-risk investor, making the choice to grow your money is an important step towards improving your financial health.