Conservative Investments: The 4 Best Alternatives for 2021

Daniel Penzing
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Stock market got you scared? These could be safer places for your cash.

Anyone with money in the stock market right now is probably feeling pretty nervous about the future, given the Republican sweep of the 2016 presidential election and Republican control of Congress. The Dow Jones Industrial Average reacted by falling more than 400 points Wednesday.

So where should you put your money if you want the highest return, and don’t want to take big risks?

Here are a few ideas to help you survive the next four years with your money intact, along with what that can mean for your portfolio. They’re all investment vehicles that are highly liquid – so if the stock market does fall further, you will be able to get your cash invested in a new manner without having to wait a long time or take too big of a loss.

Certificates of Deposit

An certificate of deposit (aka CD) is nothing more than a savings account that your bank sells you. The bank will pay you a rate of interest over the term of the CD. It allows you to earn interest on your money, but you can’t withdraw your money until the end of the term.

CDs can come with long and short terms. The longer the term of a CD, the higher interest rate it will offer you.

While CDs may not offer the best return when compared to the stock market, they are very secure investments, and also very liquid.

So What Happened in the Stock Market Recently?

One of the main reasons why people choose to invest in conservative investments is because of a lack of risk. But as we see in the short-term investing world, even those investments that are traditionally considered the safest can take some pretty hard knocks. The recent sell-off of stocks and the overall market environment proved this.

Most of us do not want to take on that kind of risk by investing in the stock market, but that doesn’t reduce our desire to grow our money. Many of us want to invest in the same company over the years. And many of us would love to find that company that appreciates (or dividends out) even when the market is rocky.

Some of the best conservative bets for long-term wealth appreciation would be real estate investments, though this is not a realistic choice for everyone. But there are a few other choices that allow you to invest in stocks, in cash gains, and in bonds.

Here are the four best alternatives for conservative investments for 2021.

Who Should (and Shouldn't) Invest Conservatively

Some investments are safer than others. Whether an investment is safe, risky, or somewhere in between depends on where it's placed in what's called the "risk spectrum." This spectrum puts investments into categories from "low risk" to “"high risk," based on the probability of substantial declines in value.

Even though many people think of investments as being either "safe" or "risky," it may be better to think of investments as falling somewhere on a "risk spectrum." You might categorize them this way:

  • 1 – Low-risk investments
  • 2 – Moderate-risk investments
  • 3 – High-risk investments

At one end of the spectrum are the safest types of investments. These low-risk, or conservative, investments typically have a long history of stability and produce little to no return. They typically involve little or no fluctuation in the value of the investment, including:

{1}. Certificates of Deposit (CDs).
{2}. Bank savings accounts.
{3}. Money-market accounts (MMAs).
{4}. Government-issued bonds.
{5}. Treasury-issued bonds.

Low-risk investments require little or no risk management and little or no expertise. They also have little or no return, though inflation-adjusted return is usually very low.

U.S. Government Bonds

Bonds can be backed by almost anything: municipal bonds, corporate bonds, certificates of deposit. In the case of U.S. government bonds (or US Treasury bonds), the bond is backed by the full faith and credit of the United States. That’s a big deal.

Because the bond is backed by the U.S. government, it’s considered very secure. It’s guaranteed to pay off the bond, whatever it may be worth. Since the bonds are issued directly by the Treasury Department, investors know they’ll be repaid.

That means bonds are guaranteed to lose money, so we look at the yield of a bond before investing. The yield is simply the interest rate the government pays back to investors.

From 1942 to 1972, bonds issued by the U.S. Treasury yielded more than 10%. This all changed in the 1970s when inflation rates started to increase. This pushed bond yields significantly lower. They eventually bottomed around 3%. In recent years, bond yields have been around 2%-3%, with 1% and -2% rates very common. The yield tells you how much money you can earn from a bond.

Bond Funds

Many investors think of bonds as the ideal conservative investment option. Bonds are issued by governments and corporations with the understanding that the issuer will pay you back with interest in regular installments over time. When you buy bonds, you become a creditor of the business or government whose bonds you’re holding, and you should therefore profit from their successes.

One of the biggest perks of buying bonds is that they are generally very stable investments. When times are good, you’ll see a decent return because of high rates of interest; however, when times are bad, it is hard for you to lose any money because there’s a lower chance that debtors will default. Bonds are generally considered extremely safe (especially in comparison to stocks), and many financial advisors recommend conservative investors put a large portion of their assets into bonds, rather than stocks, because bond investments are relatively low-risk. Unfortunately, bonds are not very interesting to many investors because the rates of return aren’t very substantial.

Further, in inflationary times, you may be upset to see that the actual value of your bonds (in real terms) declines, but you’ll still get the promised payment, and you’ll still be a creditor of the company or government.

Cash Investments

Cash investments are great because of their safety and general stability. They are easy to manage and are ideal for people who are not too confident in their investing ability.

The ideal cash investment will have high liquidity so it is easily accessible when you need it. Despite being generally safe, there is some risk of losing some money, so if you’re looking for long-term growth, you won’t get it from cash. Overall, cash investments are a good conservative option for the 2021 presidential election.

Dividend Aristocrats: Dividend-Paying Blue-Chip Stocks

Dividend Aristocrats are companies with 25 years of consecutive dividend increases.… Dividend Aristocrats are really the cream of the crop, as they have proven their ability to withstand the test of time and consistently reward shareholders with attractive dividend yields.

There are only 56 Dividend Aristocrats right now, and the stocks range from light to heavy in terms of sector exposure. This is great, as Dividend Aristocrats are extremely well-diversified.

Here are the current 10 Dividend Aristocrats by sector:

Health Care: 11 stocks

Consumer Discretionary: 7 stocks

Industrials: 5 stocks

Real Estate: 1 stock

Information Technology: 4 stocks

Energy: 3 stocks

Consumer Staples: 2 stocks

Materials: 2 stocks

Telecommunication Services: 1 stocks

Utilities: 2 stocks

Dividend Aristocrats tend to beat the market, and there’s a simple reason for this: Dividend-paying stocks forecast long-term growth.

As you can see from the chart below, the Dividend Aristocrats index is no longer outperforming the S&P 500. This is because the Dividend Aristocrats are mostly made up of large-cap stocks.


Be conservative in your investments. Don’t go crazy in a bear market.

An intelligent person looks beyond the obvious and searches for alternatives.

An intelligent person takes a step back and looks at the big picture. He knows that a long-term investment plan is better than a short-term play.

A wise man is not afraid to consider other alternatives. He does not want to put all of his money on one single card.

That does not mean that the wise man is just going to sit in the park and relax with a beer! He is going to take action!

By taking action, he can profit and actually increase his capital, while at the same time enjoying life and showing kindness to others.