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There are a lot of different types of investments to choose from.
Luckily your level of risk and time horizon will dictate many of your investment options.
But there are still a lot of choices for an individual investor to choose from.
If you’re looking for medium risk investments with high returns, you’ve come to the right place.
In this post, I share with you the 13 best medium risk investments that not only offer lower risk, but also offer above average returns.
In the end, you will have investment ideas to help you achieve your long-term goals.
Table of Contents
13 Best Medium Risk Investments
#1. Covered Calls
A great way to increase the return you get on individual stocks you own without high risk is using covered calls.
In its most basic sense, a covered call is selling someone the option to buy a stock you own at a predetermined strike price within a certain time frame.
For example, let’s say you bought ABC stock for $10 a share and it is now trading at $15.
You sell a covered call option to a buyer for $5 that says ABC stock will be trading at $20 a share in two months.
Fast forward two months and the stock is trading at $20.
The buyer exercises the option and buys the stock from you.
You made $10 because you bought at $10 and sold at $20.
In addition to this, you made $5 from selling the option in the first place.
Because of this, you had a total gain of 150% as opposed to a 100% gain.
If the stock price didn’t reach $20 a share, you would not only keep your share of stock, but you would keep the money, also called the premium, you earned for selling the stock.
This makes it a great choice for earning higher returns on stocks you already own, without adding risk.
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#2. Sector Investing
Another medium risk investment approach is to invest in sectors.
This is requires a little more work on your end, but can be profitable nonetheless.
Basically, there are areas of the market that outperform the rest of the market all the time.
These sectors rotate based on the economy and world events.
If you can identify these sectors, you can invest in the sectors to earn a higher than average return.
The good news is just by paying attention to the stock market as a whole you can see which sectors are outperforming the market.
For example, if the economy is coming out of a recession and there is a lot of economic growth, the oil and gas sector could outperform the overall market.
This is a little riskier than covered calls and you have to be disciplined to get out before prices start dropping, wiping out most of your gains.
#3. Real Estate
Real estate is one of the best ways to invest for the long run.
Aside from the housing crash in 2008, real estate tends to appreciate in value.
The rate it grows is less than the stock market, at around 3-5% annually, but it is a stable return.
This makes it a great low risk investment.
So what are your investment options for investing in real estate?
You could buy single family homes or apartment buildings and earn a rental income.
But this requires a lot of money upfront and work.
Another option is real estate investment trusts, or REITs.
These are shares of stock traded on the market you can invest in.
You have professionals manage the properties and you not only earn a portion of the rent collected through dividends, but any capital appreciation as well.
Another benefit is you own multiple properties from the start, diversifying your investment portfolio.
The downside here is most REITs invest in commercial property, so you have to be comfortable with this.
A final option is crowdfunded real estate.
Here, you pool your money with other investors, buy a property and rent it out.
A company handles the purchase and the property management and takes a small fee for their work.
You collect a percentage of the rent each quarter and when the property sells, you get a percent of the gain.
The best option for this is Arrived Homes.
You can invest as little as $100 in a property and start building your real estate empire.
Looking for an easy way to get started investing in real estate without a lot of money? Look into Arrived Homes. Pick the single family houses in the parts of the country you want to invest in and earn passive income.
#4. Convertible Bonds
Convertible bonds are bonds that have the option to be exchanged for shares of stock.
Because of this, you can boost your returns if the bond is converted and the stock price rises.
However, there is a little higher risk than the other ideas listed because if the shares are converted and prices fall, you would lose money.
But as long as you stay on top of your investments, you can limit this risk.
#5. Corporate Bonds
If convertible bonds have too high of a risk level for you because they convert to stock, consider investing in corporate bonds instead.
Even picking highly rated, stable companies can earn you better returns than investing in treasury bills without much more risk.
The best way to invest here is to pick large companies that have a solid history of strong cash flow and have a good amount of cash on the books.
This lowers the odds of default.
And to keep your risk profile low, consider investing in corporate bond mutual funds or exchange traded funds.
The management teams will do all the work to pick the bonds that offer high yields and minimal risk.
#6. Municipal Bonds
Muni bonds are a safe investment with lower returns, but many investors overlook the tax benefit of them.
In most cases, you avoid paying income tax to the U.S. government on the interest you earn.
Added to this, some states allow for you to not pay income tax as well.
This gives them a higher rate of return than the stated yield.
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But before you invest, you have to see how your state treats these bonds.
If you do get a tax break, you have to do the basic math to see the true rate of return you would earn.
#7. Low Volatility Index Investing
Volatility is simply another way of saying how much a stock price moves up and down.
For example, a utility company is going to be a low volatility investment.
They have a mature, predictable business and income stream every year.
As a result, there are very few surprises, so the stock price tends to trade in a narrow range.
On the other hand, if you look at a tech start up, that is going to have a lot of volatility.
Because of this, it is one of the high-risk investments you don’t want if you have a lower risk tolerance.
The business and income stream is not stable and the stock price can swing wildly every day.
By investing in index funds that are labeled as low volatility, you invest in companies like the utility example above and not in the tech company.
This means you take on less investment risk with your money and get a stable return over time.
#8. Target Date Funds
Target date funds are mutual funds that automatically rebalance over time.
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To invest, you simply pick your desired retirement year and invest in the corresponding fund.
If you are far away from retirement, most of the assets will be invested in stocks and some will be in bonds.
But as you get closer to retirement age, the fund will shift the asset allocation to more bonds and fewer stocks.
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The key for you is you don’t have to invest in these solely for retirement.
Say you need money in 4 years for a financial goal.
You could invest in a target date fund that has a date 5 years from now.
It will be heavily invested in bonds, but have some exposure to stocks, helping you to boost your return while still keeping your money safe.
#9. Small Businesses
Investing directly into small businesses can be very risky, so I don’t recommend that strategy since you are looking for low-risk investments.
But this doesn’t rule out small businesses completely.
You just have to invest differently.
For example, you could invest in Worthy Bonds.
Worthy funds loans for small businesses inventory.
When the business takes out the loan, they pay Worthy an interest rate.
Worthy takes a percent of this income, in this case 5%, and pays it to you.
The 5% return is what you always earn and since the loans are backed by an asset, there is very little risk to the investor.
#10. Peer To Peer Lending
If you want to avoid market fluctuation altogether, then peer to peer lending is another option to consider.
Peer to peer lending carries a little more risk than some of the other options listed, but is still a great way to invest your money.
It works by having you fund loans for other individuals.
These people opt to bypass a bank for their loan either because of poor credit, or they would rather not use a bank.
You agree to fund a portion of their loan along with other investors.
Each month as they make payment on their loan, you earn some of your loaned money back plus interest.
I’ve invested some money in the past this way and don’t have any complaints.
#11. Preferred Stocks
Preferred stock is a type of stock that pays you dividends.
But unlike common stocks, which can be risky and volatile, preferred stock is safer to own.
This is because preferred stocks pay dividends like bonds do and the dividend amount usually doesn’t change over time.
Preferred stock is also liquid, meaning it’s easy to sell your shares when needed.
The downside is that preferred stocks usually don’t offer the same upside potential as common stocks.
But for a more conservative investor, this can be a great way to earn some regular income.
#12. Dividend Stocks
Another option besides preferred stocks is common dividend paying stocks.
To be successful here, you want to invest in companies with strong balance sheets, meaning little debt, as well as strong cash flows.
This helps to ensure that should the market fall, the stock won’t drop dramatically and the dividend will still be paid.
In addition to looking at the balance sheet, you want to see how long the company has paid the dividend and how frequently they increase it.
If you can find stocks that meet all these criteria, you found yourself an investment that not only offers capital appreciation, but also pays you to invest.
#13. Credit Card Balance Transfers
Credit card balance transfers might sound odd to be on this list, but hear me out as these can be very safe investments to make.
Depending on the situation, this can be a great way to earn a good return.
It works by opening a credit card that has a balance transfer offer on it, ideally a 0% interest rate for 12 months or more.
You request a balance transfer check and put the money in your bank account and then invest it.
Each month, you take a portion out to make the minimum payment on your credit card.
The month the promotional rate ends, you withdraw the money needed to pay the debt off and you keep the interest you earned.
Now, to make this work you need 0% on the transfer and since most balance transfer offers carry a 3% fee, you need to find something safe that will earn you more than 3%.
If you can do this, you will come out ahead every time.
For example, if you do this and invest the money into Worthy Bonds, which earn 5%, you would net a 2% return.
When interest rates are higher, this is a better choice as there are many more ways to earn a higher return.
Back in the early 2000’s when high-yield savings accounts were paying 5% or more, this is was a simple, almost risk-free way to earn a return on your money.
The only issue with this option is you need to be disciplined.
You have to make the monthly payments and pay off the debt before the promotional period ends.
Otherwise you will pay a high interest rate and lose money in the process.
There are the best medium risk investments to choose from.
Before you pick any of these options, you need to assess your financial situation and your financial goals.
This will allow you to pick the best investments for you.
Otherwise, you might take on too much risk, like investing in dividend paying stocks if you need the money in 12 months.
Or you could take on too little risk if you are investing for the long term.
At the end of the day, you need to pick the right investments that match your investment strategy.
When you do this, you increase the likelihood of being successful.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.