Is there a safe investment that carries little risk?
Bonds are often described as a “safe investment” since, compared with other investments, they have a smaller risk of losing principal. However, just because some people call them “safe,” that does not mean they cannot lose money. Bonds are popular because they distribute interest payments on a set schedule, providing a reliable source of predictable income.
When choosing which bonds to buy, investors can select issues according to their individual risk tolerance – higher yields often correlate with higher risk. This choice gives investors a sense of control, because they can decide how much they are willing to risk to get a particular interest rate in return.
There are many different types of bonds on the market: Treasury bonds, municipal bonds, premium bonds, junk bonds, and more. In fact, bonds are so popular that the bond market is larger than the stock market!
Bonds, bond funds, and bond ladders can be effective tools in hedging against market volatility. Depending on your specific risk level and financial situation, chances are there is some type of bond program that can meet your needs and goals.
There’s no such thing as a “super safe” investment
It’s important to keep in mind that there are no guarantees. Even though bonds may be a “low-risk” investment, they are not risk-free; investing in bonds and bond funds carries a certain element of risk to your principal. In fact, no investment is 100% safe.
Remember that no two investors are the same. What’s good for one person may not necessarily be appropriate for another. If you are an oleh, you should note that some types of bonds, such as municipal bonds, are generally not appropriate for cross-border investors.
To find out more about bonds, how they work, and why you might want to invest in them, watch a 14-minute video about bonds here.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published April 3, 2017. Updated September 2019