The market can seem like an uncertain place, leading many investors to opt for what they consider to be “safe” investments. But how safe are “safe” investments? Bob Wamhoff, President of Wamhoff Financial Planning & Accounting offers advice.
What are investments that people think are safe?
- Savings that are not tied to the stock market
- Bank Instruments: savings accounts, money market accounts, CD’s
- Bonds: municipal bonds and treasury bonds
What are the pros and cons of these “safe” investments?
- PRO – not subject to the fluctuations of the stock market, so there is less perceived risk
- CON – lower rates of return, with yields well under the rate of inflation (which will likely be the case for another three years)
- CON – lower rates of return cause investors to go through the interest income more quickly, thus getting into their principal sooner
- CON – in addition to low yields, bonds in particular will likely go down in value as interest rates rise.
Are there other investment options outside the market besides these “safe” investments?
- Real Estate Investment Trusts (REITs)
- Oil & Gas for qualified investors
- Note programs
What should investors do when planning for retirement?
- Put together a strategy that fits your risk profile and goals
- Diversify! With the right diversification, you will have a mix of some investments that perform over others, and some that may not work out as planned, but you’ll never be devastated
- Don’t try to time the market. Anyone who thinks they can may be able to have some success in the short term, but over a long period of time it’s very hard to do.
- Don’t make decisions based on emotion or fear. Even though conventional wisdom tells us to buy low and sell high, most investors do the exact opposite
- Don’t fear the market. There is risk associated with the stock market, but history says 7 out of 10 years it is rewarding.