There are a lot of assumptions out there about what investing is. It’s gambling. It’s risky. It’s only for the rich.

And if you’ve never invested before, these rumors may swirl around in your head, making you afraid to give it a shot.

But I’m here to tell you this: Investing is the easiest and most reliable way to build long-term wealth.

And if the thought of investing makes you all “palms are sweaty, mom’s spaghetti,” that’s okay! Here are six safe investments for first-time investors (or really anyone who wants to play it safe).

First, let me explain what “safe” means

A safe investment is one that’s low-risk and has little to no chance of losing value over time. But what does that mean exactly?

I spoke with Doug Carey, a Chartered Financial Analyst (CFA) and owner of WealthTrace, and he told me that a “safe” investment means different things to different people. And it ultimately comes down to your risk tolerance.

“For some, they don’t want any chance of losing their principal on the investment. So, they may put their money into a bank account, a certificate of deposit (CD), or a money market fund,” he said.

“For others, a safe investment means that volatility is very low, but they’re okay with losing some principal. And in this case, they may invest in short-term treasury bonds (that have less than one year until maturity) or short-term bond funds.”

Inflation… the biggest problem with safe investments

All safe investments have one thing in common — they rarely (if ever) beat inflation. And this is a really big deal because inflation erodes the value of your money over time.

Think of it like this:

In February 2022, inflation hit 7.5% — the highest it’s been in over 40 years. If you had $5,000 in a savings account earning a 0.5% annual percentage yield (APY), you made $25 in interest.

However, inflation actually decreased the value of your money by $375. So, your money doesn’t stretch as far.

This may seem small, but when you’re saving for something far off like retirement, the impacts can be HUGE. Doug put it like this:

“Let’s say an investor has $500,000 saved for retirement and earns 3% less than inflation over 25 years. This $500,000 would lose more than half of its real value (its purchasing power) due to inflation.”

The TL;DR is this: Even “safe” investments carry risk — and the biggest one you need to watch out for is inflation.

Now, on to our list…

1. CDs

First up on the list are CDs (Certificates of deposit, not compact discs).

A CD is a type of savings account offered by banks and credit unions. They earn a higher interest rate than regular savings accounts.

But in exchange for this perk, you have to keep your deposit locked up, untouched, for a specific period of time (usually anywhere from three months to five years). If you need your money early, withdrawal penalties apply.

Aside from this drawback, CDs are THE safest investment on the list because they’re insured by the Federal Deposit Insurance Corporation (FDIC). This means you get back 100% of your deposit, plus interest.

You typically earn a higher interest rate on longer-term CDs and a lower interest rate on shorter-term CDs. So, the longer you can lock your money away, the better.

MU30 TIP: Before you open a CD, read the deposit account agreement to see what the early withdrawal penalty would be if you need to dip into funds early. It’s usually a few months’ interest.

Read more:

• CD interest rate calculator – how much is your CD worth?
• How to build a CD ladder

Pros and cons of CDs

Pros

• Guaranteed interest rate (so you don’t have to wonder what you’ll earn).
• Can’t lose value because it’s FDIC-insured.
• Flexible term options (usually three months to five years).
• Higher APYs than checking or savings accounts.
• Easy to open at a bank or credit union.

Cons

• Need anywhere from $500 to $1,000 to get started.
• Will pay penalties if you need your money early.
• CDs usually don’t outpace inflation, so you’ll lose purchasing power over time.
• Returns are usually lower than what you’d earn with ETFs and some bonds.

CDs at a glance

Frequently asked questions about CDs

How much money do you need to open a CD?

You typically need at least $500 to $1,000 to invest in a CD. Also, most CDs have a fixed deposit, which means you can’t add more money to it once it’s open.

What is considered a good CD rate?

Generally, you can snag a higher CD rate if you go with an online bank instead of a traditional one. That said, CD rates have been all over the place lately.

Visit our Best CD rates page to see what’s considered a good rate right now. We update the rates daily.

Can I put my emergency fund in a CD?

Generally speaking, you should NOT put your emergency fund money in a CD. Emergencies can happen at any time and you don’t want all your money locked away in a CD when you need it most.

Instead, you should keep your emergency fund money in a high-yield savings account or money market account where it’ll earn a little bit of interest and be ready to use at a moment’s notice.

Read more:

• Emergency funds: everything you need to know
• Best high-yield savings accounts compared

2. Bonds

Next up are bonds… James Bonds.

A bond is a loan you give to the government, a municipality, or a corporation.

When you buy a bond, you’re basically lending them your money for a certain amount of time. In exchange, they promise to repay your loan, as well as some extra in interest for your trouble.

The “issuer” of the bond might offer to pay you back all of your money at the end of the term. Or, they might agree to give you some fractional amount over time. (These steady payments are one reason why many retirees use bonds as a fixed income investment.)

What are the different types of bonds?

There are SO MANY different types of bonds, which can make them hard to compare. Here’s a brief rundown of a few popular kinds that are considered the safest investments:

Municipal bonds

A municipal bond (also called a “muni”) is issued by a state, city, or county government to raise money for public projects like building roads or schools.

They offer investors the opportunity to earn interest income while supporting their local community at the same time.

The best thing about municipal bonds is that they’re tax-exempt, which means you don’t have to pay taxes on any of your earnings from them — it’s like getting free money!

This makes them very attractive for investors looking to reduce their taxable income by investing in something safe with a relatively high yield. The downside is that they don’t pay as much interest as other types of bonds.

Investment grade bonds

Investment grade bonds are bonds that have been given a rating of BBB or higher by credit rating agencies like Moody’s and Standard & Poor’s.

These ratings indicate that the bond issuer has a relatively low risk of defaulting on its debt payments, which makes these bonds a safe option for risk-averse investors.

They typically offer higher yields than Treasury bonds and other government debt securities, so they can be a good addition to your investment portfolio if you’re willing to take on slightly higher risk.

Corporate bonds

Corporate bonds are issued by public and private corporations, so they really run the gamut in terms of risk and reward.

Going with a big, stable company like Google may be a safer bet, but it’ll likely have a smaller rate of return.

On the flip side, corporate bonds from smaller, private companies could carry more risk. But they may also have the potential for higher returns.

U.S. Treasuries

U.S. Treasuries are bonds, notes, and bills that are “backed by the full faith and credit of the U.S. government.”

You can buy them directly through the U.S. Treasury Department website or through your brokerage firm just like you would any other stock or bond.

There are three main types of U.S. Treasuries you can buy:

• Treasury bonds are long-term investments that typically mature in 30 years. They pay interest every six months.
• Treasury notes are longer-term investments that mature within 10 years.
• Treasury bills are short-term investments that mature in a year or less.

Pros and cons of bonds

Pros

• Can have higher interest rates than CDs.
• Pays out a fixed rate of return until maturity.
• Municipal bonds are tax-exempt.
• Can be a good way to offset stock volatility.
• Can use bond ratings to determine which ones are safest.
• Can buy directly through the government or through a bond fund at a brokerage.

Cons

• There’s always a risk of default (even though its rare).
• Bond prices can move up and down.

Bonds at a glance

Read more:

• How to buy bonds
• How does a bond work? A simple (and informative) guide

3. Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities (TIPS) are a type of government bond, but they have an unusual quirk: They keep up with inflation by adjusting their principal balance based on what the Consumer Price Index (CPI) is doing.

So, if the price of goods is going up, your TIPS’s value goes up too — which is why they’re sometimes referred to as “inflation-linked bonds.”

So, let’s say you invest $10,000 into TIPS with an interest rate of 0%.

Then the year after, the inflation rate increases to 3%.

Since the bond you bought was inflation-protected, your interest payment would be 3% of your principal. So you’d get $300 that year.

MU30 TIP: The U.S. government currently offers TIPS in 5, 10, and 30-year increments. They pay interest twice a year.

Pros and cons of TIPS

Pros

• Designed to keep up with inflation.
• Pays out interest every six months.
• Can sell them before maturity if needed.
• Can invest by buying them directly or holding them in an ETF or mutual fund.

Cons

• Interest rates can be unpredictable.

TIPS at a glance

Frequently asked questions about TIPS

Would an investor beat inflation with TIPS?

In the majority of cases, no, you can’t beat inflation with TIPS. They’re designed to keep up with inflation, but they’re not designed to outpace it.

A lot of people choose TIPS if they expect inflation to rise in the near future.

How can I invest in TIPS?

You can buy TIPS directly on treasurydirect.gov. Or, you can look for a TIPS ETF or mutual fund with your brokerage. (In this case, you invest in the TIPS just like you would a stock or bond.)

4. Exchange-Traded Funds (ETFs)

An exchange-traded fund, or ETF for short, is a basket of investments that track the performance of a specific index or asset class.

You can find an ETF for nearly ANYTHING, including:

• Bond ETFs
• TIPS ETFs
• Index ETFs
• S&P 500 ETFs
• REIT ETFs
• Even Bitcoin ETFs!

Seriously, there’s a basket of funds for just about everything (except corgis, we’ve checked).

ETFs are a great way to invest in the stock market because they allow you to instantly diversify across hundreds or thousands of securities at once.

This reduces all that risk and volatility you’d be exposed to if you just dumped all your money into one thing.

For example, if you bought an index ETF that mirrors the performance of the S&P 500, you’d be invested in all 500 stocks in the same proportions as they’re represented in the index — just with one ETF!

You’d never outpace the S&P 500 with this strategy, but you’d always match it. And let’s be honest, when you’re investing, being average is what you should strive for.

ETFs are a low-cost way to diversify your portfolio and invest in multiple assets at once. And overall, they’re considered to be one of the safest ways to invest in the stock market.

Pros and cons of ETFs

Pros

• There are ETFs for just about anything — stocks, bonds, indices, Bitcoin, you name it.
• Considered a low-risk way to invest in the stock market.
• Great way to diversify your portfolio.
• Have lower expense ratios and fees than mutual funds.

Cons

• Investment can lose value and fluctuate over time.
• Returns aren’t guaranteed.

ETFs at a glance

Read more:

• How to invest in ETFs
• The 20 best commission-free exchange-traded funds (ETFs)
• Investing in bitcoin ETFs vs. buying real bitcoin

Frequently asked questions about ETFs

How is an ETF different from an index fund?

The main difference between an ETF and an index fund is this: ETFs can be bought and sold during the day just like a regular ol’ stock. Index funds, on the other hand, are only traded once per day.

How is an ETF different from a mutual fund?

ETFs and mutual funds are both baskets of securities. But ETFs are passively managed by you (and thus have fewer fees), while mutual funds are actively managed by a financial advisor or another professional (so they’re a bit more expensive).

ETFs also have more tax benefits than mutual funds, making them a better option (in most cases) for new investors.

Read more:

• How to invest in mutual funds – and why you might want to
• How to build your own portfolio of ETFs or mutual funds

5. Gold

Another safe investment you may not have thought of is gold. (Yes, I’m talking about the precious metal that’s been prized by humans since the beginning of recorded history.)

Gold holds physical value and has been known to offset stock market volatility and hedge against inflation. And a lot of people turn to it as a safe investment alternative.

There are several ways to invest in gold:

• Buy physical gold bullion and store it virtually or in a safe place at your house.
• Invest in gold mutual funds or ETFs.
• Acquire gold jewelry that looks great and holds value.

But overall, gold is an excellent option for investors who want to invest in a physical asset that has a long history of retaining its value.

Pros and cons of gold

Pros

• Good way to round out a portfolio heavily weighted in stocks.
• Best for investors who want to have physical assets in their portfolio.
• Has historically gone up in value over the long term.

Cons

• Gold prices fluctuate very frequently.
• Could have a hard time selling it if you need to cash out your investment quickly.

Gold at a glance

Frequently asked questions about gold

Why does the gold price fluctuate?

Gold prices tend to fluctuate in response to economic or political turmoil.

If the economy is stable, gold prices usually go down. If there’s uncertainty ahead, gold prices usually go up because people are panicking.

Read more: How to invest in gold

6. Real estate (sometimes)

Owning real estate is synonymous with the American Dream. And owning investment properties sweetens the deal by giving you the chance to make money in your sleep. But it’s not without its risks.

Not all would-be real estate investors have the experience needed to screen for risky tenants. Bad tenants can damage your property, increasing the costs of repairs and eating into your ROI. Repeatedly cycling through tenants might make for irregular occupancy periods, which can limit your revenue stream and potentially put your mortgage payments in jeopardy.

To invest in real estate in a safe way, consider looking for companies that specialize in helping people buy certified rental properties.

One of our top picks is Roofstock.

Roofstock is a great choice for first-time real estate investors because they only focus on single-family homes that are currently being rented out (so you don’t have to go through the hassle of finding good tenants).

They also certify and inspect each rental home — and can hook you up with a property manager if needed — so you have all the tools you need to choose a safe investment.

MU30 TIP: If owning a property outright isn’t your thing, you can also invest in an actively managed real estate portfolio through Roofstock One.

The TL;DR is this: Real estate can be risky (sometimes). But finding professionals who can help you avoid common pitfalls can make it a little bit safer.

Pros

• Good for investors who want to own something tangible.
• Could generate passive income.
• Can buy property directly or through REITs or real estate funds.

Cons

• Housing market fluctuates and can be unpredictable.
• May have to manage and keep up with property if you own it outright.
• One of the riskier options on this list.

Real estate at a glance

Read more:

• Roofstock review – investing in rental properties made easy
• Here are the biggest risks of investing in real estate

Frequently asked questions about real estate

How can I invest in real estate without buying a property?

Real estate investment trusts, or REITs, are another great way to invest in real estate without having to deal with the day-to-day operations of owning and managing property.

REITs offer many of the same benefits as bonds do; they’re relatively safe investments that pay out regular dividends and can be traded on public exchanges just like stocks. So, they’re a great option if you want to earn some income from your portfolio.

Read more: Investing in REITs: everything you need to know

What is real estate crowdfunding?

Real estate crowdfunding is where everyday investors can fund big development deals with as little as $1,000. It’s riskier than other real estate investing methods, but it can have huge payoffs if you do it right.

Read more: Real estate crowdfunding: should you invest?

Lastly, some expert advice for nervous, first-time investors…

Doug Carey, the CFA who talked with me about safe investments, had this wise advice to share with nervous, first-time investors:

“You don’t need to be nervous about investing if you’re saving money for the long term and you’re diversifying your investments. If you have a long enough time horizon, you shouldn’t lose sleep over the ups and downs of the market. You’ll be fine in the long run.”

He ended with this valuable tip:

“And don’t look at your balances every day for longer-term investments. It causes unnecessary stress and anxiety.”

Well said, Doug. We couldn’t agree more.

Summary

Investing is a must if you want to build long-term wealth. But it can feel earth-shattering if you’ve never done it before.

Start small with some of the safe investments on this list. And remember, it’s not an all-or-nothing situation.

Maybe put $500 into a CD you can lock up for a year. Then, invest $50 a month into a popular ETF. Whatever you do, Future You will thank you for investing in yourself. You got this!

Featured image: Brt/Shutterstock.com