After the worst year for the stock market in decades and a
financial crisis that has rocked the nation’s banks, who could
blame investors for wondering whether there is any safe place to
put their money now?
Yet, experts insist, there still are secure places to protect
your cash.
After the worst year for the stock market in decades and a financial crisis that has rocked the nation’s banks, who could blame investors for wondering whether there is any safe place to put their money now?
Yet, experts insist, there still are secure places to protect your cash.
Exactly what to do depends on how close you are to retirement, how strong your risk tolerance is and how badly you need your money.
But before doing anything, people need to save. There is no substitute for the systematic, automatic, bite-the-bullet socking away of money.
Despite the industry’s financial woes, banks still are the safest place to park savings.
RATES ON CDS TOO LOW
The appeal of secure money has been undeniable during tough times, even for investors many years from retirement. But those investments are not necessarily safe, either – even if you tie up your money for a long time to get the higher available rates of return.
The problem is that average rates on a certificate of deposit recently fell to less than 3 percent for five years and 2.5 percent for one year, according to Bankrate. com. That means inflation can easily eat away the returns.
Some have found a viable option in Treasury Inflation-Protected Securities (TIPS), a government-backed bond whose principal adjusts based on the inflation rate.
SOME RISK REQUIRED
Though that’s good for your peace of mind, TIPS won’t yield the healthy returns you may need to build a robust nest egg. That will require taking at least some risks.
“If your time frame is between five and 10 years before retirement, these are safe investments,” said Greg McBride, senior financial analyst for Bankrate. com. “But beyond that, you run the risk of investing too conservatively.”
The flight to cash that took place last year went against the conventional wisdom that says investors should stay the course. A diversified portfolio of stocks, bonds and cash carries you through even the worst downturn, the financial adviser’s template says.
DIVERSITY IS THE RULE
It’s just a matter of diversifying smarter in the current market.
“A diversified portfolio is still very much appropriate for a long-term investor who is still at least five years from retirement,” said Paul Auslander, a financial planner.
That may still be a tough sale for investors burned in 2008. Ultimately, however, almost everyone who fled the market must answer a problematic question: When do I get back in?
No TOTAL SAFETY
Investors are going to have to get used to taking risks again, while realizing there is no sure thing, said Philip van Doorn, a financial analyst.
“Even if you buy gold, the value of gold could plummet,” he said. “Putting money in the bank is fine, as long as the FDIC insurance is there to pay if the bank fails. People must realize there’s just no absolute certainty in this current environment.”
