Even in a bull market, it’s wise for retirees to keep money for the next few years in a conservative bucket to preserve their spending power.
Those who haven’t yet retired may also want to set some money aside for short-term goals, or simply have an allocation with less volatility than stocks. Even the most conservative investments generate some return, but often, that’s not their primary purpose.
Here’s a look at some investments with varying degrees of capital preservation, stability and liquidity, rather than growth as the main objective:
— High-yield savings accounts.
— Treasury inflation-protected securities (TIPS).
— Certificates of deposit (CDs).
— Cash management accounts.
— Investment-grade corporate bonds.
— Real estate investment trusts (REITs).
— Buffer ETFs.
— Dividend-paying stocks.
— Preferred stocks.
— Fixed annuities.
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High-Yield Savings Accounts
These accounts offer an annual percentage yield higher than the average savings rate. In fact, investors can still find APY up to 4% or so as of April 13.
Jay Zigmont, founder and CEO of Childfree Trust in Mount Juliet, Tennessee, says high-yield accounts are perfect for stashing away an emergency fund with cash for specific needs. “The best rates are often going to come from online banks, but they are still FDIC-insured, so you don’t have to worry,” he says.
“Keep in mind that there is such a thing as too much cash,” he adds. He advises keeping enough cash in a high-yield savings account for emergencies and planned expenses, but consider investing the rest.
Treasury Inflation-Protected Securities (TIPS)
As the name suggests, these are government bonds designed to help investors protect their purchasing power from inflation. They pay interest like other bonds, but their principal is adjusted based on changes in the consumer price index.
That means when inflation rises, so does the value of your investment. Interest payments are calculated on this inflation-adjusted principal, so both the bond’s value and your income can grow over time.
This can make TIPS especially attractive in an environment of rising inflation.
Certificates of Deposit (CDs)
These instruments offer a set interest rate in return for locking up capital for a set period of time, which can range from a few months to several years. “The downside of a CD is that you may have to pay fees or lose interest if you take it out before it matures,” Zigmont says.
He notes that a CD is suitable for a planned expense, such as buying a new car in two years. “You can also ladder CDs and have a variety of lengths so that one of them is maturing regularly,” he adds. “You don’t want to keep your emergency fund or regular spending in a CD because the money is locked up.”
Cash Management Accounts
These aren’t traditional bank accounts, but they function similarly. You can find these accounts at traditional brokers and robo advisors. You can think of them as a hybrid account that combines the features of checking, savings and even a brokerage account all in one wrapper.
They generally come with fee-free ATM access, no monthly maintenance fees or overdraft charges, and no minimum balance requirements. Many people use these FDIC-insured accounts as an alternative to checking and savings accounts. They can be especially handy for short-term savings or cash you want to keep liquid, while still generating yield in a low-risk, accessible account.
Investment-Grade Corporate Bonds
Companies issue debt to finance new projects, expand operations or purchase new equipment. In return for investors purchasing this debt, the company makes interest payments and repays the principal at maturity.
Investment-grade bonds are those that bond-rating agencies deem likely to repay their debt. They can offer portfolio diversification by sector, maturity and credit rating.
They carry credit risk, albeit less than high-yield bonds issued by companies with a higher probability of default. Investment-grade corporate bonds are typically reliable income payers and can help mitigate the risk of stocks.
Real Estate Investment Trusts (REITs)
REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This helps ensure a consistent income stream for investors, making REITs attractive to retirees and others with a focus on income.
However, the high payout requirement also means REITs retain little capital for growth, making them more dependent on external financing through debt or equity.
That can expose them to interest rate risk and dilution if new shares are issued. Also, investors’ dividend income is typically taxed at ordinary income rates, which may be less favorable than qualified dividends from other equities.
[Read: How to Earn $1,000 a Month From Dividend Stocks]
Buffer ETFs
These products can be considered low-risk investments because they’re designed to provide a defined level of downside protection. They typically buffer losses of 10% to 20%, while still allowing for some market participation. They use options-based strategies to achieve those returns.
This structure can help reduce the financial impact of market volatility, making them appealing for conservative investors or retirees seeking protection while still maintaining equity exposure.
However, drawbacks include a capped upside potential, limited liquidity for some funds and the risk that the buffer doesn’t cover deeper losses beyond the stated protection level.
Dividend-Paying Stocks
All stocks have risk, but those that pay dividends tend to hail from the ranks of stable companies with a track record of profitability.
In particular, those with a multi-year history of increasing their dividends can offer some measure of consistency. That’s especially true during market downturns, when steady income becomes even more valuable.
“Prior to retirement, many of our clients enjoyed planning their expenditures around a salary and annual bonus,” says Brennan Decima, owner of Decima Wealth Consulting in St. Petersburg, Florida.
“In retirement, we treat the dividends as the bonus component of the income plan,” he adds. Companies with a long track record of dividend growth can supplement investors’ cash flow, while still offering long-term growth potential to outpace inflation.
“I try to remind my clients that even though these are portrayed as safer, they are not immune to recessions and should not be looked at as the protection piece of our plan,” Decima adds.
Preferred Stocks
These investments share characteristics of both stocks and bonds. They typically pay a fixed dividend and rank above common stocks in the event of a company’s liquidation, but unlike bonds, they usually don’t have a maturity date.
Because of their steady income stream, preferred stocks are often seen as a lower-risk alternative to common stocks, especially in income-focused portfolios.
“Preferred stocks often pay a dividend in perpetuity, like a bond with a very long maturity,” says Brian Rhoads, founder of Checkpoint Financial Planning in Highland Park, Illinois.
Rhoads notes that preferred share issuance is highly concentrated in the financial services industry, including banks and insurance companies. Holding funds or ETFs tracking preferred shares might result in an industry concentration.
Despite the reliable dividend, preferred share funds have distinct risks that investors should be aware of, Rhoads adds.
Fixed Annuities
For many retirees, the biggest concern isn’t maximizing investment returns; it’s making sure they’ll have reliable, predictable income to cover everyday living expenses.
Fixed annuities can play a key role in creating that kind of dependable cash flow.
“Household expenses in retirement should be covered by guaranteed income,” Decima says. “Our clients don’t want the markets to dictate whether or not they can pay the utilities or buy groceries.”
He notes that a well-designed retirement plan aims to generate the maximum cash flow with the least amount of principal. Since annuity payouts are typically higher than those of bonds or CDs, clients can use a fixed annuity to create more income with fewer dollars.
Annuities can be controversial, but Decima notes that the traditional stigma of high-cost and high-commission annuities is no longer the case. “There are some great commission-free options for clients to create their retirement salary,” he says.
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Update 04/13/26: This story was published at an earlier date and has been updated with new information.