The most conservative investment is a money market mutual fund that invests only in short-term government-guaranteed securities. The shorter the maturity, the more conservative the investment because shorter maturities are less subject to market and interest rate risk than longer maturities. While bonds are considered more conservative investments than stocks, high-grade common stock of major companies and utilities is also a conservative investment. However, no matter what you choose to invest in, never fail to monitor its status as global events have a way of altering the financial security of even the safest investments.
Certificates of Deposit
Bank certificates of deposit are among the safest investments. The Federal Deposit Insurance Corporation insures deposits at banks and thrift institutions up to $250,000 per depositor, as of 2011, so if you and your wife and your family trust each take out a certificate of deposit, your total coverage is $750,000. However, the coverage amount has changed in the past so ask about the current coverage limit before you invest. Bank CDs pay interest quarterly or every six months depending on the offerings of the particular institution.
U.S. Treasury Securities
The U.S. Treasury borrows money by issuing bills, notes and bonds as well as certain special-purpose products such as iBonds, which have interest rates pegged to inflation. These securities pay interest at maturity or every six months, depending on the issue, and they are backed by the full faith and credit of the U.S. government. They are easily bought directly from the Treasury, via TreasuryDirect, without extra fees or commissions.
Corporate and Municipal Bonds
Next in safety to government-guaranteed securities are investment-grade corporate and municipal bonds. The safest credit rating for these bonds is AAA by Standard & Poor's and Aaa by Moody's. Investment-grade bonds include AA/Aa, A/A and BBB/Baa. Anything lower would not be considered a conservative investment. Interest is paid every six months with principal returned at maturity. Municipal bond interest may be exempt from local, state and federal income tax depending on where you live.
High-Grade Common Stock
Common stock issues traded on the Dow Jones Industrial or Utilities Averages, or the Standard & Poor's 100 or 500 Indexes are considered conservative investments because they are issued by the financially strongest public companies. If you invest in these securities, do not assume they will always remain financially strong. Changes in the economy, technology and governmental regulations can cause a strong company to falter and even go out of business entirely. Trans World Airlines and International Harvester are two good examples.