Even as the stock market has seen bullish growth in recent years, the number of people who benefit is still quite small. That’s because the stock market doesn’t seem like it should be on the list of the safest investments around.
Thankfully, there are low-risk investments that can still yield a high return if you choose wisely.
Here are four to consider when you want to build your wealth and stay ahead of inflation.
1. Invest in Real Estate
Real estate is a great way to see your investments turn around and yield in a major way. While there are ups and downs in the market, real estate tends to go up steadily.
Rather than having to search for the hottest neighborhood with low prices about to skyrocket, get in with a real estate investment trust. These trusts invest in mortgages or direct equity, taking on a variety of properties to diversify their earning potential. As an investor, you’ll get dividends, or payments, on a regular basis from a trust that’s doing well.
In general, real estate investment trusts will give you higher yields than you’d get from stocks. From dividend payments to real growth, you’ll see a higher yield dollar for dollar.
If you fear what could happen to the stock market, REITs are the safe bet for you as you’ll be able to see growth even when the stock market goes down. REITs aren’t directly connected with stock exchanges. If stocks go down, there’s little worry that your REIT will too.
2. Stocks That Pay You
When investing in stocks, the best choice you can make are investments that yield dividends. Large companies and corporations that are available on the public market will pay out dividends that are much higher than a COD or a U.S. Treasury bond.
While you’re still dealing with stocks and their well-known volatility, you can still take advantage of the potential for capital gains. Fixed-income securities might feel safer but they won’t give you what you can get from dividend-paying stocks.
With this type of stock, you get a combination of growth and income together. You’ll be able to weather declines and dips in the stock market because you’ll have received income in advance. If the price of the stock fluctuates, you’ll be able to use your dividend to cushion the fall or to invest in some other stocks.
Growth stocks in a bear market will struggle to grow. They’ll have a tough time reaching the heights that they could in a bull market. However, dividend-paying stocks will still pay you during those times of slow growth.
Most investors will abandon investing in growth stocks during a bear market and focus on gaining income. Because of that lack of investment, they won’t grow as much. Dividend-paying stocks are much more robust.
Index funds connected to a bunch of dividend-paying stocks are great if you’re looking to supplement your retirement. You’ll be able to stay ahead of inflation with their help. Read more here to find out about which stocks are right for you.
3. Lending to Peers
In recent years, there’s been a spike in the number of peer-to-peer lending markets that help people with a little bit of capital lend to other people. If you have an account with just a few extra thousand dollars, you could help borrowers who need a little financial help.
This type of online lending is totally online and will match borrowers with lenders to help them both grow wealth. By skipping out on using a bank as an intermediary, people get the money they need more quickly and there are no added fees or middlemen.
Lending Club and Prosper are just two of the most popular platforms you can start lending on. They pay a higher return rate than you would get on the stock market, with a cap of around $40,000 to invest. You’ll see up to 8 percent of a return on your investments, helping you stay well ahead of inflation.
Risk will be based on who you lend money to and how likely they are to pay it back. If you don’t understand the risks, this might not be the medium for you.
Peer to peer lending is great for building a community of wealth but if you don’t get paid back for the money you lend out, you could be up the creek. These companies match you up with people who need a loan but it’s up to you to decide whether or not you want to lend to them.
4. Municipal Bonds
Local governments are invested in building wealth in their region. They need money to build roads, open schools, and keep the region running. When you invest your money in them, they will pay a return as a thank you and you’ll find yourself more interested in what’s going on in your community.
When you earn interest from these bonds, you’re not required to pay any federal taxes on that money. The agencies who issue the bonds can be state, county, or even local. Depending on where the bonds are issues, you might not be required to pay any local taxes.
This is a great way for you to invest in your neighborhood or city if it’s up and coming and you want to see it succeed. If you’re in a small community of investors, you can work together to rebuild an ailing downtown or help protect local parks. By making these investments, you’re considered a valuable voice in your community and local officials will listen to your interests, all while you grow your wealth.
The Safest Investments Might Not Be the Most Attractive
When you’re seeking out which are the safest investments for your money, you’ll have to look beyond buying tech stocks or investing in startups. While there are plenty of stories of people becoming millionaires by doing so, there’s plenty of risks involved. Unless you’re already a millionaire, you might not be able to risk losing as much as you could with those investments.
If you’ve only got $1,000 to start, check out our guide for smart ways to making that money grow.