Cash, CDs, or ETFs? The New Race for Low-Risk Returns.

The overall market has experienced a quarter best described as volatile. While major indexes performed well in August and early September, gains were concentrated in large tech and AI companies. Concerns -- including rising oil prices, inflation, and interest rates -- put enough pressure on small-cap stocks and other sectors to cause them to lag.

Of course, any investor who's been in the market long enough understands that values rise and values drop. It's the nature of the beast. However, investors are particularly on edge today, with many seeking low-risk, stable returns.

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What investors are looking for

Whether planning for retirement or building a college fund, most investors want to make "safe" choices. And when they seek low-risk returns, they typically compare tools that solve different problems.

Cash

Cash is reassuring and easy to access, making it handy for emergencies or upcoming expenses. But keeping too much in cash can cost you money over the long term.

• The upside: Its value is steady compared with other investments, and you can access it when you need it.
• The downside: Inflation chips away at what your money can buy. Savings rates can also drop when interest rates fall, and money sitting in cash may miss out on longer-term growth.

CDs and Treasury bills

If you can leave the money alone for a while, CDs and Treasury bills are worth a look. A CD ladder staggers maturity dates, so some of your money becomes available at regular intervals. T-bills are short-term loans to the U.S. government.

• The upside: CDs offer a fixed term and predictable returns, and they're covered by deposit insurance. The federal government backs T-bills, and the interest on them is exempt from state and local income taxes.
• The downside: Cashing out a CD early can trigger a penalty. Selling a T-bill before it matures could leave you with less than you paid. And when either one matures, there's no guarantee you'll find the same rate again.

ETFs

An ETF bundles investments, such as stocks or bonds, into a single fund. A broad index ETF can spread your money across many holdings without charging much in fees.

• The upside: That spread can soften the impact of one investment doing poorly.
• The downside: It can't prevent losses when markets fall. Funds focused on a narrow slice of the market, or those that use leverage, can be especially volatile.

Match the investment to your timeline

There's no one best place for everyone's money. Think about when you'll need it and how comfortable you are with ups and downs.

Keep emergency savings and money you'll need soon in a safe, accessible place and insure it. If you have a specific date in mind, a CD or CD ladder may fit. For money you can leave invested through a downturn, a low-risk, broadly diversified ETF could be an option -- for example, the iShares Core 30/70 Conservative Allocation ETF (NYSEMKT: AOK).

Your own reaction to market swings matters, too. If a downturn might push you to sell, insured savings may be a better fit for the money you'll need soon. But leaving money you won't need for years in cash can make it harder to keep up with inflation.

Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.