Low-risk investing can be a sensible approach for risk-averse doctors. It’s a way for busy doctors to build wealth with little effort, albeit at lower rates of return than other more risk tolerant approaches. In this article, we’ll review what low-risk investments are, and take a look at different types and when they’re a good idea. Keep reading to learn more.
Low-risk investments are relatively unlikely to lose money in the short-term. These types of investments aren’t volatile but due to their low risk, they typically offer modest returns. High-risk investments, such as commodities, derivatives, and some equities can be subject to wide price fluctuations and permanent losses, as well as potentially higher returns.
Some low-risk investments are:
A traditional savings account at a bank or credit union is usually just a place to park your money. If you want to use the money in your savings account, you generally have to either withdraw or transfer it to your checking account. They typically pay low interest rates.
Online high-yield savings accounts are usually offered by online banks that don’t have brick and mortar branches. They tend to pay higher interest rates than the national savings average.
A certificate of deposit (CD) is a type of savings account that has a fixed maturity date and term length. When it’s time to cash in, you’ll receive your original amount plus accrued interest. CDs don’t usually have monthly fees, but you could face a penalty for early withdrawal.
A money market account is an interest-bearing deposit account that typically includes debit card and check capabilities. You can think of it as a cross between a savings account and a checking account.
A cash-management account is a cash account often offered by brokerages. They often have checking, savings, and investing capabilities.
Treasury bills, notes, and bonds are different types of fixed-income securities offered by the federal government. The main difference between them is their maturity dates.
Low-risk investments typically have low returns. In exchange for security, you’re giving up the possibility of earning more for your money. Investments with higher returns generally entail higher risk.
Low-risk investments are best if:
Low-risk investments can be a good option for risk-averse, busy doctors because they don’t demand much in terms of time or energy and can ensure that your money will be available to you in the short-term. Other types of investments, such as real estate, are less liquid and potentially higher risk.
Low-risk investments can be a sensible component of an investment strategy, but they shouldn’t necessarily make up your entire portfolio. The low returns on low-risk products probably won’t help you save enough for your future and/or keep up with inflation. Your portfolio should ideally be a mix of different investment products. For example, a mix of stocks and bonds can create a more diversified portfolio that will likely earn higher returns in the long run. You can learn more about the fundamentals of investing here.
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