If it seems like the current state of the economy has us all running around scared, looking for a way to not just mek money, but protect what we already have, its because it’s true. Regular people everywhere looking for the best possible ways to keep their retirement funds and college funds for their children safe, and if there is anything left over, maybe build a little wealth.
Most financial advisors will warn against any investments promising to be “risk-free” since nothing in this market is truly risk free, but as we learned from the Bernie Madoff saga, if someone tells you they can invest your money and make you a fortune in a very short amount of time… they are probably trouble.
One of the “safest” places to invest is in CDs and money market accounts, but with the government keeping interest rates down (in an effort to try to spur on the economy) these investments typically don’t yield much, if anything at all. On the plus side though, CDs and money markets are usually insured (to a certain point) so the risk of losing your investment is substantially lower.
Money market mutual funds are one of the simplest ways for average investors to allocate money towards low-risk securities and still realize decent returns. In fact, some investors have even been able to realize a positive return when they are forced take funds out of these low-risk investment vehicles soon after making a deposit.
By shifting your asset allocations to include more liquid investment options such as CDs, money market accounts and money market mutual funds, you can still manage to make a little bit of money while playing it safe.
On the other hand, if you are looking to be a little bit more aggressive, think about choosing stocks in more non-traditional areas, such as basic materials, real estate, foreign securities, precious metals and natural resources.
If moderate risk and decent diversification sounds best to you, consider diving your portfolio up into seven different sectors: Cash, fixed income (such as bonds and CDs), stocks, real estate, foreign currencies, commodities and metals. Talk to an experienced financial advisor to determine the best percentage allocation in each of these categories for your situation.
For many years, a standard asset allocation of 60% stocks and 40% bonds has been recommended as a basic investment strategy for all investors. While stocks cover the growth element, bonds are considered a safer part of the plan, providing more income. The theory is that whatever losses are incurred in one option will be balanced through gains in the other option.
Also, one of the best tactics when developing a sound investment strategy is learning when to be aggressive and when to play defense. So, if you have been pursuing the same asset allocation for years, it is likely worth taking a look at today’s changed investment landscape to determine whether your current investment strategy includes the appropriate level of acceptable risk.
Another powerful piece of advice to help investors survive today’s economic uncertainty is: If you hold bonds or bond funds, you might want to shorten their maturities. This means that investors who are holding long-term bond funds should consider transfering them to intermediate and short-term funds. This way you are strengthening the security of your investment, since bond values could fall due to rising interest rates and, if this happens, those who will receive the hardest blow will be long-term bondholders.
One important thing to consider though is that in this economy there is no perfectly safe investment, and even more, what works for one investor may not work for another, so it is important that you plan your investments with your own financial planner based on your own investment needs, hunker down and try to weather the stormy seas of this crazy market.
Photo Credit: MetalCowboy