The total cash investment that shareholders and debtholders have made in a company is called Invested Capital. Investing capital into a business or stock is always a risk for shareholders, but with savvy business maneuvers, finding investments with the least risk and the most return can nearly ensure return on the invested capital.
Here are three investment opportunities with low risks and a rate of return.
Certificates of Deposits
With a certificate of deposit, an investor trades depositing money for a length of time to a financial institution. In return, the investor gets a set interest rate for a period and it does not change, no matter what happens to interest rates.
Why are CDs a good, low risk investment? Because as long as investors get a certificate of deposit with an FDIC-insured financial institution, there’s a guarantee to get the principal back as long as the total deposits with that lender are less than $250,000. The government guarantees that there’s no loss, and the financial institution adds interest on top of that.
How much interest earned is dependent on the length of the CD term and interest rates in the economy. Interest rates are low, but if CDs are invested for a long period of time, the returns are higher for the investor…
Treasury Inflation Protected Securities (TIPS)
The U.S. Treasury has a few different bond investments to choose from. One with the lowest risk is a Treasury Inflation Protection Security or TIPS. These bonds come with two methods of growth.
The first is a fixed interest rate that doesn’t change for the length of the bond. The second is built-in inflation protection that is guaranteed by the government. Whatever rate inflation grows during the time it’s invested, its value rises with that rate.
TIPS can be purchased individually or invested in a mutual fund that owns a basket of TIPS. The latter option makes managing investments easier, while the former gives options.
Money Market Funds
A money market fund is a mutual fund with the main purpose of not losing any value of an investment. The fund tries to pay out interest as well ensure the fund is worthwhile. The fund’s goal is to maintain a net asset value (NAV) of $1 per share.
These funds aren’t foolproof, but do come with a strong pedigree in protecting the underlying value of an investment. It is possible for the NAV to drop below $1, but it is rare. The interest income is tiny, but the money is relatively secure.
Jonah Engler is a financial expert with a background in entrepreneurship.
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