It is important to lower the risks regarding the investments as one nears his retirement. It would be wiser to make low-risk investments to avoid a huge slump in the market just while you would start to make your withdrawals towards retirement. The key is to reduce the risk to as little as possible even if the interest earned is nominal and cash is preserved for the several years that remain post-retirement. Some of the best low-risk investment plans will be putting your money in funds that are backed by the government. Also, it is important to take note of the fine print before signing up for any plan and get enough clarifications from a qualified financial advisor about a product or service. Some of the low-risk investment ideas that are government-backed in the country are discussed below: Treasury Inflation Protected Securities (TIPS) Of the several types of bond investments options provided by the US Treasury, TIPS is one of the lowest risk plans. These are bonds that have two methods in which they grow. One is the fixed rate of interest which does not change throughout the duration of the bond. The second method is built-in protection against inflation which is guaranteed by the government. This means that if there is growing inflation during the period of your TIPS, the value of your investment will increase with the same rate as inflation. Investment in TIPS can be made in an individual plan or through a mutual fund which in turn will invest the money in a range of TIPS. US Savings Bonds These are investment plans that are backed by the Federal government of the country and function like TIPS. These are one of the most stable investments since the possibility of debt defaults is microscopic. These bonds are mainly of two types as discussed below:
- Series I These have two components of returns – one is a fixed interest rate (constant throughout the bond period) and the other is an adjustable component of the total return linked to inflation (adjusted once in every 6 months).
- Series EE These bonds have only one component of return, which is a fixed rate of interest. This is automatically added to the bond at every month end. Although the current rates are low, which makes these bonds interesting is the fact that there is a guarantee by the Treasury for the bond value to be doubled if it is held until maturity. Holding until maturity period equates the return on investment to about 3.5% which will get you only the interest rate of the bond after deducting early withdrawal fees.
Municipal bonds If a state or a local level government requires to borrow money, then that government entity will issue a municipal bond, also called as munis, these bonds are exempted from Federal income tax and certain state-specific taxes. Hence, these are great for people who look for ways to reduce their exposure to taxes. Municipal bonds are very safe investment ideas for the below two reasons. Exemption from income tax leads to higher returns as compared to a risky, taxable investment.
- The possibilities of defaulting by a borrower are very rare. Even in the worst case, governments usually increase the taxes or issue new debt to pay off an old debt.
