What is the Most Conservative Asset Class?

Posted by Mckenna Duncan on Sep 9, 2022


Conservative investments can be an important aspect of a well-diversified portfolio, especially as you near or enter retirement. 

Conservative investments can serve several purposes. Conservative investing prioritizes preserving the purchasing power of investment capital with the least amount of risk. That’s important as you hit retirement, since you have less time to make up for bear market runs or broader changes in the national economy. 

Secondly, they can help you preserve capital – another key benefit for retirees who no longer are earning paychecks and have much shorter investment horizons than younger investors. Lastly, conservative investments may provide a hedge against rising inflation. The tradeoff, of course, is that returns typically are lower than investments that carry a higher degree of risk, such as small-cap stocks. 

Below we’ll look at some common investments considered to be on the conservative side of the risk scale; however, investors need to determine which of these investments might be appropriate for their investment strategy. 

5 Common Types of Conservative or Lower-Risk Investments 

Conservative investors often are seeking to lower their overall exposure to risk or to preserve capital. They can attempt to reduce risk through a number of investments, including: 

  1. Treasury bills, notes, bonds and TIPS. Treasury bills are fully backed by the U.S. government, which virtually eliminates default risk. These short-term securities, used to fund national debt, usually mature in 12 or fewer months and are typically issued in $1,000 denominations. Notes, bonds, and TIPS – Treasury inflation-protected securities – also can be bought and sold whenever you desire. They are considered lower risk investments because you can typically receive all your capital back if you own them until maturity. 
  2. Certificates of Deposit. CDs are another lower-risk asset class. They offer fixed returns and are covered by the Federal Deposit Insurance Corporation if they are issued by banks. You won’t lose money so long as you leave the certificate of deposit intact for its full term. Short-term certificates of deposit typically have maturity dates between 30 days and one year, while longer-term CDs have maturity dates spanning 15 to 60 months. 
  3. Money market funds. This investment class consists of bonds, pools of CDs, and other types of lower-risk investments that are grouped together and offered by mutual fund firms or investment brokerages. Money market funds are liquid, meaning you can withdraw your investment capital with no penalty. 
  4. High-yield savings accounts. These accounts can pay as much as 20 and 25 percent of the national average for regular savings accounts, though those high rates are usually offered only by online banks. High-yield savings accounts typically have initial deposit and minimum balance requirements. 
  5. Series I savings bonds. These bonds are issues by the U.S. Treasury and pay interest that's a mix of fixed and inflationary rates. The inflation rate is adjusted twice each year. These bonds earn interest for up to 30 years and must be held for at least one year. If you cash them before five years, you’ll lose the previous three months interest.1 

The Bottom Line 

The investment classes mentioned above aren’t one-size-fits-all. What constitutes a conservative investment for one investor may pose increased risk for another. Only you can decide which asset classes best meet your definition of conservative and fits within your investment strategy. 


1Series I Savings Bonds, Treasury Direct, https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.    

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. 

An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. 

Certificates of deposit are insured by the FDIC for up to $250,000 per depositor and offer a fixed rate of return, whereas both the principal and yield of bonds and stocks will fluctuate with market conditions. 

U.S. Treasury securities are guaranteed as to the timely payment of principal and interest if held to maturity. Investment options are neither issued nor guaranteed by the U.S. government. 


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