Are there investment opportunities with low risk?

I have made my final mortgage payment this month and will have extra cash. I would like to invest rather than get used to spending. I'm a bit skeptical with the stock market. I was thinking a CD, but they want you to invest a lump sum all at once. I've heard of tax-free bond funds that pay dividends monthly, which sounds good. Are they worth the time? I want something with little risk and that I can add to every 2 weeks (each pay period). I'm 35 years old, so time is still somewhat on my side to take advantage of compounding.

Investing, Bonds / Fixed Income, Stocks, Starting Out
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January 2016
89% of people found this answer helpful

First off, congratulations on paying off your mortgage! That’s a huge step! I think you’re on the right track by asking these tough questions. However, at your age, assuming that these assets are going to be used for retirement purposes, the investments you are mentioning could prove to hurt you in the long run due to the loss of potential upside of utilizing the stock market. CD returns are next to nothing and tax-free bond funds aren’t much better. But, if you’re sold on using one or the other, I would also look into taxable bonds as well. If you aren’t in a high tax bracket, it may be better to utilize taxable bonds instead of a tax-free municipal bond fund. In fact, if you are below the 25% tax bracket, then qualified dividends from taxable bond funds are not taxed at all.

Historically, bonds have certainly experienced less volatility than stocks, but returns have also been much lower. And, given the fact that interest rates are near all-time lows, that could provide adverse circumstances for the bond market in the coming years. If interest rates rise, bond prices will go down. This will cause your bond funds to lose value as rates increase. Be sure to check the duration of the bond fund if you want to limit that. For example, longer term bond funds will be more affected by a change in rates than shorter term funds. Also, be sure to check the credit quality. “High-yield” doesn’t always mean “better.” High-yield funds have lower credit quality, which means there is a higher default risk associated with the underlying bonds. I would encourage you to get advice from a qualified investment professional so that he/she can cover these important things with you. Making efficient and effective decisions with your money can make a huge difference over time. 

January 2016
January 2016