RSS Feeds: Safe Investments – A Guide to Keeping your Money Safe
After working diligently for your whole life to build a nest egg for retirement, you want to know that your investments offer a good return but remain safe. Although well managed ETFs, corporate bonds, stocks, and mutual funds may provide superior returns, risk goes hand in hand with reward. Your principal and earnings are not guaranteed and can be dramatically affected by a down turn (as we certainly saw these last couple of years). As people near retirement, it makes sense to move investments into fixed income products such as Treasuries, Government Agency Bonds, or Certificates of Deposits.
Here is a safe investment guide with pros and cons for each product.
Certificates of Deposit (CDs)
Credit Unions and banks have CDs for terms usually from 90-Days to 5-years. As long as the CD is offered by an FDIC insured bank or NCUA insured credit union, your principal is guaranteed by the federal government up to $250,000 for a single account; $500,000 for a joint account (through 12/31/13); and $250,000 for an IRA. If you open a CD that compounds and open it for less then the interest you will earn, the principal and interest would be guaranteed up to the above amounts. Because, they carry no risk (as noted above), certificates of deposit are attractive and very safe investments. The interest from CDs is fully taxable. Most CDs are fixed for the term you select, but there are banks that offer callable CDs and even CDs linked to different market indices. Certificates of deposit generally offer yields that are better than Treasuries and GABs, but you may want to do a tax analysis to see what the Tax Equivalent Yield is. You can open Certificates of Deposit at multiple institutions and receive $250,000 of FDIC insurance at each institution. Searching for multiple institutions can be time consuming. Deposit brokers can assist you and save you time with this search.
Treasury Bills, Notes, and Bonds
The only difference in the above is the length of the term. T-Bills are offered with a term length of 1-year or less. T-Notes are offered with a term length of 1-year to 10-years. Finally, T-Bonds are offered with term lengths greater than 10-years. We will collectively call these Treasuries. Treasuries are issued by the Federal Government and you are basically loaning them your funds for which they guarantee to pay you a certain interest rate. They are guaranteed by the 'full faith and credit' of the United States Government. You will always get your principal back at maturity. Treasuries can also be purchased in large denominations. Their safety and ease comes with a relatively low rate of return. They can also be bought and sold in the secondary market. Treasuries are a safe investment, but as with any of these fixed income investments, they do carry the risk that interest rates and/or inflation will rise during the term, thus eroding their spending power. Treasuries are exempt from state and local taxes. Keep a close watch on yields. Treasuries really aren't the best investment rate right now, but at times they are.
Other safe money investments could be Government Bonds or highly rated Corporate Bonds, although Corporate Bonds are certainly the riskiest and many would not consider them safe.
This article is for informational purposes only and does not serve as investment advice or as a recommendation of the products described within. The opinions herein are the sole opinions of the author.
Similar Articles:
The state of the federal debt puts an investor in a bad spot. Buying treasuries long term and getting 4% could look awful bad when inflation hits. Short term getting 1.5% stinks too. Maybe a treasury called TIPs, which adjusts its rates every 6 months is an option in this economic climate.