If you're seeking the safest mutual funds to invest in, you're probably looking for funds with a consistent return. Financial planners advise these funds for investors more concerned with asset preservation rather than growth. For safety and stability, mutual fund investors should pick specific bonds and conservatively invest in balanced funds. Investments that are the safest are not always the best. Let's establish what we mean by safety before looking at some of the safest mutual funds. Remember that while safety does not always imply certainty, it generally implies protecting your savings. It can also refer to staying ahead of inflation or preserving your money's purchasing value. You may need to accept at least enough risk to match the inflation rate to protect your assets successfully. The Consumer Price Index (CPI) measures the long-term average inflation rate, around 3.0%. If you want to conserve your money, look for investments that may give you a 3.0% or higher average return. Suppose you assume the safest assets to buy are guaranteed. In that case, you won't find them in primary investment securities like stocks, bonds, or mutual funds, because they risk losing money. Put your money in an FDIC-insured bank account or a certificate of deposit if you want a guaranteed principal (CD). 3 However, in exchange for the assurance, you may be unable to keep up with or remain ahead of inflation.
The Safest Mutual Funds to Invest In
Bond funds are the safest mutual funds for matching or staying ahead of inflation by a small margin. Short-term bond funds are generally safer and more stable than intermediate- to long-term bond funds. 4 Furthermore, US Treasury Bonds are safer than municipal and corporate bonds in general. A notable example of a bond fund that invests in short-term US Treasury bonds is Vanguard Short-Term Treasury Fund (VFISX) (VFISX). 6 VFINX has achieved an average rate of return of around 3.9 percent since its launch in 1991. Although past performance is no guarantee of future results, the fund's extensive track record implies that it can outperform inflation. Similarly, the Fidelity Treasury Money Market (FZFXX) invests almost solely in the safest assets: US Treasury securities and repurchase agreements. It has returned an average annualized return of 3.2 percent since its inception in 1983. Remember that bond funds, despite investing in one of the safest investments, US Treasury bonds, are not guaranteed. Bond funds can lose money because the investor is not holding bonds (but rather shares of the mutual fund), albeit this is not a regular occurrence.The Most Stable Mutual Funds
When investors say they want "safety," they usually mean "price stability" or "minimized value fluctuation." Balanced funds or target-date retirement funds, which invest in a mix of equities, bonds, cash, and other mutual funds inside one fund, are the most common types for stability. Balanced and target-date funds, sometimes known as "funds of funds," can diversify their holdings to the point where losses are infrequent but long-term returns are higher than most bond funds. Diversification and a higher allocation to low-risk assets, such as bonds, and a lower allocation to high-risk assets, such as equities, are used to attain this lower relative volatility. Vanguard Wellesley Income is one of the best-balanced funds with a track record of consistent returns over inflation (VWINX). 10 Since its start in 1970, this 40-year-old fund has averaged 9.7%. Given that its portfolio comprises around two-thirds bonds and one-third stocks, these returns are astronomically high. Regarding target-date retirement funds, those with a target date near the current year will usually have the lowest risk and be the most stable. For example, Vanguard Target Retirement 2020 (VTWNX) is recommended for investors who have started or plan to start making withdrawals in the year 2020. The asset allocation is around 50 percent stocks and 50 percent bonds due to the short-term goal. It will continue to become more cautious as time passes. 12 Target-date funds are offered by Vanguard and Fidelity, as well as other mutual fund companies, with dates ranging from 2060 to 2080 and beyond, often with 5- or 10-year intervals. Another 2020 target-date fund, the Fidelity Freedom 2020 Fund (FFFDX), is split around 50/50 between stocks and bonds.Final Thoughts
Make sure you understand your priorities. Mutual funds are generally not the most excellent choice if your top concern is safety and you don't mind receiving near-zero interest. Investing in mutual funds is not a superb option if you need money in less than three years. However, suppose you want your investments to stay up with (or outperform) inflation. In that case, you'll have to accept some market risk, including volatility (the up and down swings in price). If you're unsure how much risk is appropriate, take a risk tolerance test.Most Commonly Asked Questions (FAQs)
How do you receive a guaranteed 4% return on your investment Fixed-income investments provide a guaranteed return, but they are not without risk. Any investment involves some level of risk. There's "credit risk," for example, the possibility that the firm would fail on its loan. Investors seeking to reduce risk can compare an investment's yield to a related fixed-income index. A greater yield usually indicates a more risky borrower. What are the risks associated with money market mutual funds Because they often invest in short-term, liquid securities, money market mutual funds are among the safest investing options. 14 Keep in mind that money market mutual funds and money market accounts are not the same thing. The latter is covered by the Federal Deposit Insurance Corporation (FDIC). Therefore they are almost risk-free. While money market funds are generally less dangerous than other types of investments, such as equities, they entail some risk. Investing entails risk, including the possibility of losing money. The Balance does not provide tax, investment, or financial services and advice. The material is provided without considering any specific investor's investment objectives, risk tolerance, or financial circumstances. It may not be suitable for all investors. Past performance does not guarantee future outcomes.