Is There Such a Thing as Risk-Free Investing?

by Debbie Dragon on 21 March 2009 9 comments

Most definitions for “investing” indicate that the term is used to describe money that is invested with an expectation of profit. This definition determines that an investment doesn't necessarily need an element of risk in order to be considered investing, even though many people fear investing because of the risk of losing their money.

Risk-free investing and savings options are insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain amount of money per person. The FDIC is an independent agency of the US government that is fully backed by the government. Since the FDIC was created in 1933, no one depositing money into an FDIC insured institution has lost any of their FDIC-insured funds.

You have a few options for investing your money (saving money with an expectation of earning a profit on the money you save) that are considered free of risks for losing any of the money you contribute. In addition to the standard or online savings accounts and interest-earning checking account, the following are risk free investment strategies for growing your money:

Money Market Funds: Often confused with Money Market Accounts which are not risk-free, the Money Market Fund is a deposit account that earns interest. If you open a Money Market Fund with an FDIC institution, your insured up to $100,000 for standard accounts and up to $250,000 for retirement Money Market Funds. These accounts offer a higher interest rate than your typical savings or interest-earning checking account, but usually limit the number of transactions you can make per month.

Fixed Rate IRA: If you're looking to deposit your money and save for a specific length of time, the fixed rate IRA might be a good option. Fixed rate IRAs are funded with Certificate of Deposits, give you a fixed interest rate of return, and all interest is tax deferred. In some cases, you may be able to deduct contributions to fixed rate IRAs on your federal income taxes (check with an accountant for eligibility requirements). Like a traditional IRA, if you withdraw your money before it reaches the date of maturity, you will end up with an early withdrawal penalty – however, leaving your money in for the full term gives you a grace period at maturity during which you can withdraw the funds without penalty or re-invest.

Certificate of Deposits: When you use a CD to save your money, you earn higher rates of return the longer the savings term you select. You are basically loaning money to the bank, and earning an interest for doing so. The longer you “loan” the money, the more you will receive in interest. CDs opened at FDIC insured institutions will be guaranteed by the federal government up to specified limits.

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Philip Brewer's picture

It's worth distinguishing between money market funds and money market accounts.

Money market accounts are just a kind of checkable account at a bank.  They were invented back in the 1980s when there were rules about the interest that banks could pay on checking accounts, as a checkable account that could pay a higher rate of interest.  There's usually a limit on the number of checks you can write per month.  Like any bank account, your money is insured by the FDIC, to an aggregate limit of $250,000 for all a depositor's accounts at that bank.

Money market funds date back to the 1970s.  They were aso invented as a way to get around the rules about what interest banks could pay on checking accounts, but they are not bank accounts at all; they're mutual funds.  They have historically not been insured, but after Lehman Brothers went bust and some mutual funds came up short, the Treasure created a special program to insure money fund accounts as a short-term emergency measure to keep the financial system from self-destructing.  I wrote a bit about the details of that plan in a post on the Money fund guarantee program.  The key things to remember are that the insurance only covers the balance in your account on September 19, 2008 (the day the plan was created) and that the program is temporary--it'll expire on April 30 unless it's extended for another three months.

Guest's picture

No there is no such thing as risk free investing. There is no reward without risk or opportunity costs incurred (even savings accounts, money market accounts, or CDs).

Guest's picture
Thomas Adair

Developed multiple arbitrages for the financial markets. Arbitrages that produce just a few percent a year, to arbitrages that produce over 30 percent a year.

In 2001 i started developing, as of now, a dozen arbitrages. I lock in an X percentage, and Y time later, i close out the arbitrage. Over 30%/yr.

Risk-Free Investing is not only possible, but in abundance. Just that people are told and taught that it is impossible. No risk has been in front of all, but not seen.

The market is unlimited.

Thomas Adair
thomasadair@hotmail.com

Guest's picture
thomas adair

The Holy Grail to Investing.

The utlimate business solution. The ability to cut the cost of any business expense, or just plain invest.

Developed multiple arbitrages for the financial markets. Arbitrages that produce just a few percent a year, to arbitrages that produce over 30 percent a year.

In 2001 i started developing, as of now, a dozen arbitrages. I lock in an X percentage, and Y time later, i close out the arbitrage. Over 30%/yr.

Risk-Free Investing is not only possible, but in abundance. Just that people are told and taught that it is impossible. No risk has been in front of all, but not seen.

The market is unlimited.

I'm interested in selling, or partnering to sell, or partner in a business that uses my arbitrage.

Thomas
352-283-3326
HolyGrailToInvesting@hotmail.com

Guest's picture
Guest

Really? This article is retarded, there is risk with every investment. Even the ones you described above. There is risk of inflation, currency risk, opportunity risk, transactional risk (if the bank goes bust, it would take you a lot of time to recover your money from the FDIC).... just to name a few. Maybe you should research and actucally study this stuff before you post more crap on the internet?

Debbie Dragon's picture

Thanks for your comment, guest... while I don't particularly think we need to throw the word "retarded' around, you almost have a good point in that there are always disadvantages to everything.

 Personally I wouldn't consider inflation a "risk" since you know it's going to happen.  The money you save today is surely not going to have the same value 20 years from now.    And if a bank goes bust and you lose your money - how is it a risk if the FDIC gives it back? Sure it may take awhile... but you aren't at risk at forever losing it.

Guest's picture
Guest

Ready to run, business solution.

Developed multiple arbitrages for the financial markets. Arbitrages that produce just a few percent a year, to arbitrages that produce over 30 percent a year.

In 2001 i started developing, as of now, a dozen arbitrages. I lock in an X percentage, and Y time later, i close out the arbitrage. Over 30%/yr.

Risk-Free Investing is not only possible, but in abundance. Just that people are told and taught that it is impossible. No risk has been in front of all, but not seen.

The market is unlimited.

Thomas Adair
thomasadair@hotmail.com

Guest's picture
Guest

Ready to run, business solution.

Developed multiple arbitrages for the financial markets. Arbitrages that produce just a few percent a year, to arbitrages that produce over 30 percent a year.

In 2001 i started developing, as of now, a dozen arbitrages. I lock in an X percentage, and Y time later, i close out the arbitrage. Over 30%/yr.

Risk-Free Investing is not only possible, but in abundance. Just that people are told and taught that it is impossible. No risk has been in front of all, but not seen.

The market is unlimited.

Thomas Adair
thomasadair@hotmail.com

Guest's picture
thomas adair

The Holy Grail to Investing.

The utlimate business solution. The ability to cut the cost of any business expense, or just plain invest.

Developed multiple arbitrages for the financial markets. Arbitrages that produce just a few percent a year, to arbitrages that produce over 30 percent a year.

In 2001 i started developing, as of now, a dozen arbitrages. I lock in an X percentage, and Y time later, i close out the arbitrage. Over 30%/yr.

Risk-Free Investing is not only possible, but in abundance. Just that people are told and taught that it is impossible. No risk has been in front of all, but not seen.

The market is unlimited.

I'm interested in selling, or partnering to sell, or partner in a business that uses my arbitrage.

Thomas
352-283-3326
HolyGrailToInvesting@hotmail.com