Top 5 Low-Risk Investment Options for New Investors: A Beginner's Guide

Did you know that 63% of Americans aged 18-29 believe investing is "too risky" to try? I get it - taking that first step into investing can feel overwhelming!

When I first started I was always questioning what I was doing and whether or not I was on the right route (I wasn't). Like most people I was winging it and the results reflected that.

I've been on both ends of the spectrum when it comes to risk. Too conservative with trying CD ladders and way too aggressive with individual stocks. Both weren't a substantial amount of money by today's standards but at that early point in life every dollar mattered.

That doesn't necessarily mean that those were bad investments (some definitely were) but really I just didn't have a solid game plan and understanding of how those investment vehicles could have their rightful place and support my goals.

The real risk is not investing in the first place. Every year inflation sucks away buying power and you simply can't save for retirement or financial independence.

But here's the truth: some investment options are specifically designed to help beginners build wealth with minimal risk. Super simple and often low to no cost to setup options are abundant.

I love watching people's financial anxiety turn into confidence by simply starting with the right strategies. Confidence creates consistency and it's really about getting those wins built up over time.

Let's explore the safest ways to dip your toes into the investment world.

High-Yield Savings Accounts and Money Market Funds

We all know that having a cash reserve set aside for emergencies is an essential first step before investing (you've been reading my articles RIGHT!?!?). Quick recap, the whole point is liquidity.

The last thing you want to have happen is some interruption in life that causes you to have to stop making progress whether it's investing or paying off debt. Where you decide to park your money matters and this is why having a high-yield saving or money market account is a great option.

High-yield savings rates can vary across banks and the current interest rate environment. Major online banks typically can offer more competitive rates vs brick and mortar options. I personally have mine with American Express.

The differences between traditional and high-yield accounts rates are pretty substantial. The current average APY for HYSA's is 4.17% compared to the national average of .61% for traditional accounts.

It's a no brainer decision, which are my favorite type of decision.

Also you still get the FDIC insurance protection up to $250,000 and can withdraw and transfer funds without penalty. Make sure to find one with no monthly fees or low to no minimum deposit requirements.

Quick Tip: Don't go crazy researching and analyzing a hundred different options and trying to find the highest rate. Those rates change and the main thing is that your money that is sitting idle is not getting dragged down by inflation.

Money market funds offer slightly higher returns and accessibility with minimal risk. This is because banks invest the funds in low-risk securities such as certificates of deposit and government securities.

You can access your funds by writing checks, withdrawing money from ATMs, or even using a debit card but there may be a delay between withdrawal and receiving the money.

To be clear, I wouldn't suggest these as your main investment vehicles for building your long term and substantial wealth but they will have an important place in your overall success so definitely consider starting here.

Certificate of Deposits (CDs): The Time-Locked Investment

A certificate of deposit, or CD, is a type of savings account that pays a fixed interest rate for a set period of time. There are various CD terms and typically the longer holding period the higher the interest rate. They're a good a option for a long-term savings goal such as a big purchase like a house or car or for locking in a rate when interest rates fall.

Understand early withdrawal penalties and when they apply. You've agreed to have your money tied up for a set term so breaking that agreement typically results in some penalties.

Every financial institution is different, for instance you may be charged the equivalent of three months' interest for an early withdrawal from a CD that matures in 6 months or a penalty of 12 months' worth of interest on a 5 year CD.

CD laddering is a strategy designed for maximizing returns but also increasing your liquidity. It works by splitting a lump sum of money into multiple CDs with different maturity dates.

The ladder part comes into play where a portion of your money becomes available at regular intervals as each CD matures which allows you to access some of your funds while still having your

Here are 2 sample strategies:

Option 1

• $2,500 in a 1-year CD
• $2,500 in a 2-year CD
• $2,500 in a 3-year CD
• $2,500 in a 4-year CD
• $2,500 in a 5-year CD

Option 2

• $1,000 in a 6 month CD
• 1 month later, $1,000 in another 6 month CD
• Repeat every month

In both examples, the amount invested is approximately the same ($12 - 12.5k). In the first option you'll get better interest rates from the longer terms but you'll have to wait a year before the first CD matures.

In the second example you'll get more liquidity because every month a CD will mature so if you need the funds you've got access to new money every month. The flip side is that you sacrifice earnings on your money by going to shorter term CDs.

The down side to the CD ladder strategy in general is that interest rates can possibly be lower when it comes time to reinvest which can lead to lower returns.

No-penalty CDs are a type of certificate of deposit that allows you to withdraw your money before it's set maturity date without losing any of the interest gained while your funds were in the account.

Blue-Chip Dividend Stocks and Index Funds

Explore low-cost dividend index fund options for diversification. An index fund is a type of investment that tracks a market index, such as the S&P 500 or Russel 2000.

They are a low-cost way to build wealth, and diversify your portfolio, through following a passive vs. active investment approach.

Passive meaning that instead of trying to beat the market, which most active money managers don't accomplish, they try to match the performance of the market.

Quite literally following the old saying of "If you can't beat them, join them".

My investment portfolio is currently entirely made up of index funds. Not only is it important to diversify your money across many different companies but also industries and regions of the world as well.

I've got some index funds that hold established blue chip companies, some that are more growth oriented, and some that focus on international markets.

Not only are index funds a great starting point but they can also be your lifetime investment strategy.

Although I wouldn't start with picking individual stocks I do believe it's important to know how to identify characteristics of stable, dividend-paying companies. It's been proven that a majority of active portfolio managers aren't great stock pickers and that's with a whole team of analysts and resources behind them.

Learn about dividend aristocrats and their track record. A dividend aristocrat is a company that has increased its dividend each year for at least 25 years. These companies are often part of the S&P 500 index.

Why dividend aristocrats are attractive to investors:

Steady income: Investors can expect a consistent payout

Long-term growth: Mature companies with a history of growing their dividends.

Resilience: Often able to maintain their dividend payments even during economic downturns.

There's even some index funds focused specifically on holding dividend aristocrats such as "S&P Dividend Aristocrats" (ticker symbol SPDAUDP).

Understand that dividend reinvestment strategies are the key component of compound returns. In the beginning it might seem tempting to see cash start to accumulate in your account and want to pull it out but trust me that's the last thing you want to do!

Remember the story of the golden goose? Well, picture your dividend portfolio as that magical bird, and the dividends? Those are the golden eggs!

Sure, you could crack a few open for a quick meal now—but what if you let them hatch into even more golden geese? Before you know it, you won’t just have a few eggs—you’ll have an entire flock, multiplying and growing on its own. That’s the magic of compounding—let your geese do the work, and soon, you’ll be swimming in golden eggs!

Target Date Funds: The Set-and-Forget Option

Asset allocation is a core principle in developing an investment plan for your long-term wealth creation. You can choose an assortment of index funds but you've got to still figure out what proportion of your money to have in each one and of course select funds that are in alignment with your objectives and risk tolerance.

That may feel overwhelming at first which is why target date funds are another popular option when getting started. Target date funds come designed with an asset allocation across multiple funds and in the proportions that are in line with the expected date that you'll need access i.e. the target date.

The real benefits come in the form of automatic rebalancing. Rebalancing means to keep your investment portfolio in line with your original asset allocation strategy. Over time different some assets will outperform others in your portfolio due to market conditions.

For instance if you choose a target date fund with a 30 year timeline such as 2055 then your investment holding proportions will look much differently now than at the target date. It might start out as 80% stocks and 20% bonds and then gradually shift over time to 20% stocks and 80% bonds.

That's because the objective in the beginning is focused on growth and as the fund approaches the maturity date then the proportions become more conservative and focused on preservation rather than growth.

This is how target date funds automatically adjust risk over time. They are about as "set and forget" as they come.

Compare expense ratios across different fund providers. These ratios can range from as low as .1% to 1.5%. Always look for target-date funds with lower expense ratios as they can significantly impact your long-term returns.

Starting your investment journey doesn't have to be scary. Usually a lot of the fear comes from trying something new and worrying that it won't work out.

By focusing on these low-risk options, you can begin building wealth while protecting your hard-earned money. Remember, even modest returns can compound significantly over time.

Keep it very simple at first so you can build the habits of sticking to an investment plan and managing it. Overtime you can make it more robust...notice I didn't say complex.

Like you, you're investment objectives and knowledge will grow and advance over time.

It starts with taking that first step today - whether it's opening a high-yield savings account or investing in your first target date fund. Get some experience under your belt and stick to it.

Your future self will thank you for starting now!