Keeping your cash in bank accounts, certificates of deposit (CDs), bonds and money market funds come with less risk than investing it in the stock market, which is often volatile.

However, those investments come with their own risks. If you keep all your cash in “safe” investments, you can end up well behind on your long-term retirement goals.

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What ‘safe’ really means — and what it doesn’t

Many “safe” investments retain the same nominal value and go up gradually due to interest. If you put $10,000 into a high-yield savings account (HYSA), you don’t have to worry about losing 10% of your savings due to poor market conditions. If you get a 4% annual percentage yield (APY), you will actually end up with a $10,400 balance by the end of the year just by keeping money in the bank.

CDs, money market funds and Treasuries are some of the fixed-income assets that follow a similar playbook. If you’re not sure if you should invest in CDs, bonds or another fixed-income asset, Money’s guide on CDs versus bonds can help.

Bank products are Federal Deposit Insurance Corporation-insured for up to $250,000 per depositor, per insured bank for each ownership category (as long as the institution offering you the product is protected by the FDIC). That means your money is protected if the bank goes under.

However, safe assets are not growth-oriented. It’s not like the stock market, where you can realize an annualized 8% to 10% return for decades (though that performance isn’t guaranteed). A 2% to 4% APY is more common for vehicles such as HYSAs and CDs.

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The hidden risks in conservative investments

Once investors understand the difference between nominal and real returns, it’s hard to look at “safe” investments in the same way. Remember how a $10,000 balance becomes a $10,400 balance at the end of the year with a 4% APY? That’s the nominal return. However, if you account for inflation and taxes, your purchasing power may actually go down.

Relying on products that have interest rates tied to the Federal Reserve — as is the case with HYSAs and CDs — comes with its own risk, because rates can go down if the Fed decides to cut rates. While a CD allows you to lock in a rate for a term length, new CD rates could fall. HYSA rates can change at any time.

How to have balance

An emergency fund is still valuable, and financial advisors recommend having one with enough cash to cover at least three to six months of living expenses. You can also invest some money for short-term goals in CDs and Treasuries with different maturity dates to ensure some of your money will become accessible when you need it.

However, you shouldn’t put all of your money into a HYSA or cash-like alternative, especially if you’re not planning to retire for years or decades. Consider investing via a 401(k), individual retirement account (IRA) or other investment account. A regular review of your stock portfolio, like once a quarter or year, can help ensure it’s still aligned with your goals, risk tolerance and time horizon.

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