9 Safe Investments That Aren't Bonds

By Tim Lemke on 3 June 2015 0 comments

So you have a good nest egg built up and you want to protect it. Bonds are a popular choice for those looking for stability, but these days, they are being viewed with more skepticism as interest rates may soon be on the rise.

What to do? There are plenty of other places to put your money with relatively low risk. Consider these investments that offer predictable returns and some peace of mind for investors.

1. Cash

I know, it's boring. But if you truly don't want to see your nest egg decline, there are worse things than placing your money in a bank. Interest rates are near historic lows, so you won't be getting much of a return, but inflation is also pretty low right now, so cash isn't really losing value, either. To get a slightly higher return than a run-of-the-mill savings account, consider looking into certificates of deposit, some of which allow you to withdraw money without penalty.

2. REIT Stocks

Shares of real estate investment trusts, or REITs, can be a stable part of an investment portfolio because they're known for high dividends (though not necessarily growth in share value). REITs are a way for an individual investor to have real estate in their portfolio without needing to buy property. They are furthermore required to pay out all of their taxable income in the form of dividends. This makes them a great option for income investors, though it's still important to diversify your portfolio to protect against a crash in the real estate sector (like we saw in 2008). Remember that REIT dividends also count as ordinary income for tax purposes.

3. Lending Club

Lending Club is an increasingly popular investment vehicle that allows an individual to invest in other people's debt. You can build a portfolio of loans based on your own risk tolerance, and there's a good chance you'll make money because Lending Club only approves applications from borrowers with solid credit. Lending Club claims that 99% of account holders with more than 100 notes earn positive returns. (See also: Everything You Need to Know about Investing with Lending Club)

4. Your Electric Company

Investing in utilities such as your electric provider will historically bring you steady, if unspectacular, returns. Generally, utilities pay above-average dividends and are a reliable bet because they provide products and services that we all use. If you are unsure of what specific companies to invest in, consider buying into the Vanguard Utilities Index Fund (VPU) or the iShares US Utilities ETF (IDU).

5. Annuities

There are many different types of annuities, but most of them operate on the principle of paying out a steady stream of income for a set period of time — or even the rest of your life. Some annuities are designed to give you maximum payments each month, while others are designed to offer additional tax-deferred savings if you've already maxed out your other retirement contributions.

6. Preferred Stock

Shares of preferred stock can go up and down just like common shares, but offer some advantages for those looking for more stability. Generally, preferred stocks offer a fixed dividend, and owners of these have priority over the owners of common shares if a company goes bankrupt. If you're interested in preferred stock, but unclear on what company to invest in, consider a mutual fund or ETF, such as the iShares U.S. Preferred Stock ETF.

7. Consumer Goods

Everyone needs food and clothing. And our economy is built on the idea of people buying stuff, after all. That's why if you invest in consumer goods, you'll probably see a steady and solid investment return even when the rest of the stock market is all over the place. Companies like Procter & Gamble are good bets, or you could invest in a vehicle such as the iShares Dow Jones U.S. Consumer Goods Sector Index Fund (IYK.)

8. Health Care and Pharmaceuticals

People aren't getting any younger, and Americans are going to need health care regardless of the economic environment. The Vanguard Health Care Fund (VGHCX) has generated a 13% return over the last decade and nearly 30% over the last year. Companies like Johnson & Johnson and Pfizer have been some of the most reliable performers in the stock market for decades.

9. The Broader Stock Market

Yes, the conventional wisdom is that you should avoid investing in equities if you want to protect your assets. But there is an argument to be made that investing in the S&P 500 is as safe an investment as anything else. Consider that the value of the S&P 500 has risen every year in the last decade, except for one (2008). In fact, since 1980, the market has brought positive returns in all but six years. Investing in index funds or ETFs such as the iShares Total Market ETF is anything but a risky move.

What alternatives to bonds do you use to provide stable returns?

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