Even cash isn't really risk-free. It can be lost or stolen, and while you can protect it, there's a good chance inflation will reduce its value. I keep most of my cash in government money market funds, which hold government bonds and other government securities. However, they depend on the reliability of the government itself and on the prudence of the companies that manage the funds. This is not a foolproof solution either.
Bank savings accounts and money market accounts protected by the Federal Deposit Insurance Corporation up to $250,000 per depositor per bank are a fairly safe bet, but they too rely on the U.S. government for backing.
Still, high-quality bonds and conservative cash holdings are far safer than stocks. Owning small numbers of individual stocks is extremely risky. Research by Hendrik Bessembinder, a finance professor at Arizona State University, has shown that most stocks don't match the yields of Treasury bills. In the short term, the stock market is inherently unstable, while government bonds are quite stable.
This research found that a relative handful of high-flying stocks such as Nvidia, Apple, Microsoft, IBM and, in earlier times, Philip Morris, Exxon and US Steel generated the vast majority of the stock market's long-term returns. Holding only the winners will make you rich, but most people can't pick the amazing stocks in advance. Holding a share of the entire stock and bond market is much less risky.
A “free lunch”
As Harry Markowitz, the Nobel Prize winner and founder of modern portfolio theory, said, diversification is the only “free lunch” in investing because by owning a little of everything in these public markets, including things you don't quite like, you can reduce your risk.