CD Sarah is the type of person who doesn’t want to lose a cent.
Everything she invests in must be completely safe. She is happy
without any risk to her principal, but she hopes for more interest
than she is getting.
CD Sarah is the type of person who doesn’t want to lose a cent. Everything she invests in must be completely safe. She is happy without any risk to her principal, but she hopes for more interest than she is getting.
There are many CD Sarahs out there. They deposit of hundreds of billions of dollars each year in CDs and Treasury bills attest to the concern people have for the safety of their money.
The interest and dividends Sarah is receiving makes it appear that she is getting ahead. However, after taxes and inflation, the money isn’t worth anymore than it was before she invested.
The good news for the CD Sarahs out there is that there are plenty of products that provide low to no risk. One is a money market fund. A fund is diversified and invests in short-term financial instruments.
Another suggestion Sarahs should consider is a CD Unit Investment Trust, which usually pays a higher interest rate and carries an FDIC guarantee. These trusts purchase large CDs that have a higher rate and break them up into units for investors.
The annuity is another investment that CD Sarahs should look into. They guarantee a fixed monthly income for a specified period of time and are perfect for those who want a specific payment each month.
Dependable-Dollar Dan, like CD Sarah, is an investor who doesn’t feel comfortable losing on an investment. The difference is Sarah is unwilling to take risks and Dan is willing to do so in order to achieve a consistent and dependable monthly income. His goal is to have the yield on his portfolio be high enough to offset fluctuations on his principal.
One investment Dan always has is the annuity. He likes annuities because he knows exactly how much he’ll receive each month for the rest of his life. Annuities can be great, but since they can never increase, it’s important to have other investments that offset the effects of inflation.
One strategy Dan should also consider is covered call writing. This involves two parts: the purchase of blue-chip companies and the sale of options to enhance the yield. Options permit an investor to gamble on a stock’s growth or decline without having to own it. With covered call writing, a speculator buys an option that permits him to purchase the stock from the seller of the option if it goes up. This way, Dan can reserve the purchase price so that the appreciation belongs to him. The downside is when the market drops significantly, speculators become unwilling to maintain the income from their portfolio. This is why it’s important to deposit a portion of the premiums into a money market account as they’re earned, that way they can be used to supplement the dividends and maintain income.
This concludes the final part of our six-part series. Hopefully you now have a better understanding of what type of investor you are and how to maximize your investment results. If you have questions or believe your financial portfolio needs to be reexamined, contact a trustworthy financial advisor who can help you get the full potential for your investment personality.
You can contact Eric at www.WealthCreator.com or 297-9800.
