Where can I put my money to generate a decent yield without taking on too much risk?
The safest investments are still Treasury securities and FDIC-insured bank CDs, but yields are very low.
For a higher yield, you'll have to accept some type of risk:
Duration risk: The chance that your investment's value may go up or down as interest rates change.
Credit risk: The chance your bond issuer may default and fail to pay back the money.
Right now, 10-year Treasury yields aren't high enough to warrant the duration risk for most investors. That leaves …
Corporate bonds: Their yields are higher, but in a downturn or recession, the credit risk increases. There's another option …
Municipal bonds: They may provide higher after-tax yields for investors in high tax brackets. Focus on higher-rated issuers, which are generally in a better financial position to manage through an economic downturn.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.
Tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security's tax-exempt status (federal and in-state) is obtained from third-parties and Schwab does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.
Where can you put money to generate a decent yield without taking on too much risk?