Different savings and investment instruments come with various levels of risk. Here are some of the common instruments ranked from typically least risky to most risky:

1. Savings Accounts: These are offered by banks and credit unions and are considered among the safest instruments. They are often insured up to a certain amount by the government in many countries (e.g., FDIC in the U.S.).
2. Certificates of Deposit (CDs): These are time deposits with banks and credit unions. They also tend to be insured and are considered safe, but they lock up your money for a specified period.
3. Government Bonds: These are essentially loans to the government. They are considered low risk in stable countries, but in countries with political instability or fiscal problems, they can be riskier.
4. Municipal Bonds: These are loans to local governments. Generally, they’re relatively low risk, but they depend on the financial health of the local government.
5. Corporate Bonds: These are loans to companies. Their risk can vary greatly depending on the company’s financial health.
6. Mutual Funds: These are pooled investments that might include stocks, bonds, or other assets. The risk depends on what the fund invests in.
7. Real Estate: Investing in property can offer both risk and reward. The housing market can fluctuate, and properties require maintenance.
8. Stocks: These represent ownership in a company. Stocks can be volatile and are influenced by a myriad of factors like company performance, global events, and market speculation.
9. Commodities: Investing in raw materials like gold, oil, or agricultural products. Their prices can be highly volatile due to factors like supply, demand, geopolitical events, etc.
10. Cryptocurrencies: Digital or virtual currencies that use cryptography for security. Highly speculative and can be extremely volatile.
11. Derivatives: Financial contracts like options, futures, and swaps whose value is derived from underlying assets like stocks or commodities. These can be complex and come with high risk.
12. Leveraged and Inverse ETFs: These exchange-traded funds amplify returns using financial derivatives and debt, which can lead to larger gains but also larger losses.
13. Penny Stocks: Low-priced, small-cap stocks that can be highly speculative and volatile.

Of these, derivatives, leveraged and inverse ETFs, cryptocurrencies, and penny stocks are among the riskiest, given their potential for significant volatility and loss. However, the risk of any investment also depends on factors like market conditions, global events, and individual investment strategies. It’s crucial to thoroughly research and perhaps consult with a financial advisor before making investment decisions.

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Which savings instruments are considered the least risky?

The least risky savings and investment instruments are those that are typically backed by strong institutions or governments and have low volatility. Here are some of the instruments considered to be among the least risky:

1. Savings Accounts: Offered by banks and credit unions, these are considered one of the safest places to park money. In many countries, savings accounts are insured by the government up to a certain limit (e.g., by the FDIC in the U.S. up to $250,000 per depositor, per insured bank, as of my last update in January 2022).
2. Money Market Accounts: These are interest-bearing accounts offered by financial institutions. They often come with higher interest rates than regular savings accounts but may have minimum balance requirements. Like savings accounts, they are typically insured by the government in many countries.
3. Certificates of Deposit (CDs): These are time deposits held at banks and credit unions. You commit to keeping the money in the CD for a fixed period in exchange for a typically higher interest rate. They are also usually insured by the government.
4. Government Bonds: Particularly those issued by stable governments, such as U.S. Treasury bonds, are considered very low risk. These are essentially loans to the government. The risk is minimal because it’s backed by the credit of the issuing country.
5. Short-Term Corporate Bonds: While riskier than government bonds, short-term bonds issued by reputable corporations can also be considered relatively low risk compared to other investment vehicles.
6. Money Market Funds: These are mutual funds that invest in short-term, high-quality securities. They aim to maintain a stable value but are not insured, so there’s a slightly higher risk than with savings or money market accounts.
7. Fixed Annuities: These insurance products provide a guaranteed interest rate over a specified period, ensuring a return of principal and earned interest. They are backed by the creditworthiness of the issuing insurance company.
8. Municipal Bonds: Issued by state and local governments, these bonds are generally considered low risk, especially if they are rated highly by credit rating agencies. However, the exact level of risk can vary based on the fiscal health of the issuing entity.

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It’s essential to note that while these instruments are considered “least risky,” no investment is entirely without risk. For instance, while the risk of losing principal might be minimal with these instruments, there’s the risk of not keeping up with inflation, leading to a reduction in purchasing power over time.

Diversifying one’s portfolio is a common strategy to mitigate risk. When considering any investment or savings instrument, individuals should evaluate their financial goals, risk tolerance, and time horizon and possibly consult with a financial advisor.

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