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8 Safe Investments for People Who Hate Risking Their Money

Think back to what the stock market looked like to you in March 2020, aka, the apocalypse. Did it look like:

A.) The biggest bargain sale you’ve ever seen in your lifetime? 

or

B.) A burning pit of money that was about to incinerate your life’s savings?

If you answered “B,” you probably have a low risk tolerance. You worry more about losing money than missing out on the opportunity to make more of it.

Being cautious about how you invest your money is a good thing. But if you’re so risk-averse that you avoid investing altogether, you’re putting your money at greater risk than you think.

Do Safe Investments Actually Exist?

When you think about the risks of investing, you probably think about losing principal, i.e., the original amount you invested. If you keep your money in a bank account, there’s virtually no chance of that happening because deposits of up to $250,000 are FDIC insured. 

But consider that the average savings account pays just 0.05% APY, while in 2019, inflation was about 2.3%.

So while you’re not at risk of losing principal, you still face purchasing power risk, which is the risk that your money loses value. Your money needs to earn enough to keep up with inflation to avoid losing purchasing power. If inflation continues at 2.3%, buying $100 worth of groceries will cost you $102.30 a year from now. If you’re saving over decades toward retirement, you’ll be able to buy a whole lot less groceries in your golden years.

There’s also the risk of missed opportunity. By playing it too safe, you’re unlikely to earn the returns you need to grow into a sufficient nest egg.

Though there’s no such thing as a risk-free investment, there are plenty of safe ways to invest your money.

8 Low-Risk Investments for People Who Hate Losing Money

Here are eight options that are good for conservative investors. (Spoiler: Gold, bitcoin and penny stocks did not make our list.

1. CDs

If you have cash you won’t need for a while, investing in a CD, or certificate of deposit, is a good way to earn more interest than you’d get with a regular bank account.

You get a fixed interest rate as long as you don’t withdraw your money before the maturity date. Typically, the longer the duration, the higher the interest rate. 

Since they’re FDIC insured, CDs are among the safest investments in existence. But low risk translates to low rewards. Those low interest rates for borrowers translate to lower APYs for money we save at a bank. Even for five-year CDs, the best APYs are just over 1%.

You also risk losing your interest and even some principal if you need to withdraw money early.

2. Money Market Funds

Not to be confused with money market accounts, money market funds are actually mutual funds that invest in low-risk, short-term debts, such as CDs and U.S. Treasurys. (More on those shortly.)

The returns are often on par with CD interest rates. One advantage: It’s a liquid investment, which means you can cash out at any time. But because they aren’t FDIC insured, they can technically lose principal, though they’re considered extraordinarily safe.

3. Treasury Inflation Protected Securities (TIPS)

The U.S. government finances its debt by issuing Treasurys. When you buy Treasurys, you’re investing in bonds backed by the “full faith and credit of the U.S. government.” Unless the federal government defaults on its debt for the first time in history, investors get paid.

The price of that safety: pathetically low yields that often don’t keep up with inflation.

TIPS offer built-in inflation protection — as the name “Treasury Inflation Protected Securities” implies. Available in five-, 10- and 30-year increments, their principal is adjusted based on changes to the Consumer Price Index. The twice-a-year interest payments are adjusted accordingly, as well.

If your principal is $1,000 and the CPI showed inflation of 3%, your new principal is $1,030, and your interest payment is based on the adjusted amount. 

On the flip side, if there’s deflation, your principal is adjusted downward.

4. Municipal Bonds

Municipal bonds, or “munis,” are bonds issued by a state or local government. They’re popular with retirees because the income they generate is tax-free at the federal level. Sometimes when you buy muni bonds in your state, the state doesn’t tax them either.

There are two basic types of munis: General obligation bonds, which are issued for general public works projects, and revenue bonds, which are backed by specific projects, like a hospital or toll road.

General obligation bonds have the lowest risk because the issuing government pledges to raise taxes if necessary to make sure bondholders get paid. With revenue bonds, bondholders get paid from the income generated by the project, so there’s a higher risk of default.

5. Investment-Grade Bonds

Bonds issued by corporations are inherently riskier than bonds issued by governments, because even a stable corporation is at higher risk of defaulting on its debt. But you can mitigate the risks by choosing investment-grade bonds, which are issued by corporations with good to excellent credit ratings.

Because investment-grade bonds are low risk, the yields are low compared to higher-risk “junk bonds.” That’s because corporations with low credit ratings have to pay investors more to compensate them for the extra risk.

6. Target-Date Funds

When you compare bonds vs. stocks, bonds are generally safer, while stocks offer more growth. That’s why as a general rule, your retirement portfolio starts out mostly invested in stocks and then gradually allocates more to bonds.

Target-date funds make that reallocation automatic. They’re commonly found in 401(k)s, IRAs and 529 plans. You choose the date that’s closest to the year you plan to retire or send your child to college. Then the fund gradually shifts more toward safer investments, like bonds and money market funds as that date gets nearer.

7. Total Market ETFs

While having a small percentage of your money in super low-risk investments like CDs,

money market funds and Treasurys is OK, there really is no avoiding the stock market if

you want your money to grow.

If you’re playing day trader, the stock market is a risky place. But when you’re committed to investing in stocks for the long haul, you’re way less exposed to risk. While downturns can cause you to lose money in the short term, the stock market historically ticks upward over time.

A total stock market exchange-traded fund will invest you in hundreds or thousands of companies. Usually, they reflect the makeup of a major stock index, like the Wilshire 5000. If the stock market is up 5%, you’d expect your investment to be up by roughly the same amount. Same goes for if the market drops 5%.

By investing in a huge range of companies, you get an instantly diversified portfolio, which is far less risky than picking your own stocks.

8. Dividend Stocks

If you opt to invest in individual companies, sticking with dividend-paying stock is a smart move. When a company’s board of directors votes to approve a dividend, they’re redistributing part of the profit back to investors.

Dividends are commonly offered by companies that are stable and have a track record of earning a profit. Younger companies are less likely to offer a dividend because they need to reinvest their profits. They have more growth potential, but they’re also a higher risk because they’re less-established.

The best part: Many companies allow shareholders to automatically reinvest their dividends, which means even more compound returns.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]

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Source: thepennyhoarder.com

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8 Surprising Things No One Tells You About Retirement

Surprised retiree
cheapbooks / Shutterstock.com

Most of us spend decades working and dreaming of a day when we can retire. But when we finally arrive at our post-work destination, it’s not unusual to find ourselves in a world of surprises.

Knowing what to expect in advance can help you prepare for — and adjust to — life in your golden years. The following are some key things no one tells you about before you retire.

Housing will remain your biggest expense

Senior couple at home
Monkey Business Images / Shutterstock.com

Many retirees dream of paying off their mortgage so they will be free to spend money on travel and other activities. But the reality is that housing likely will remain the biggest expense in your budget for as long as you live.

U.S. households led by someone age 65 or older spent an average of $17,472 on housing in 2019, as we detail in “Here’s How Much Retiree Households Spend in a Year.” That is easily more than these households spent in any other expense category.

Work will not end — it will simply change

older worker
michaeljung / Shutterstock.com

You will probably work in retirement — and not just because you have to. More than 70% of people say they want to work during retirement, according to the findings of “Work in Retirement: Myths and Motivations,” a joint study by Merrill Lynch and Age Wave.

As you age, chances are good that the nature of work will change, though. The study found that 3 in 5 retirees plan to launch a new line of work that differs from what they have done in the past. Working retirees also are three times more likely than pre-retirees to own their own business.

If you’ve never volunteered before, you won’t start in retirement

Senior volunteer
Rawpixel.com / Shutterstock.com

About 90% of Americans say they would like to do volunteer service for someone or some cause that needs their help, but just 25% actually do so, according to the Stanford Center on Longevity.

When asked why they don’t follow through on the wish to help, Americans most commonly cite a lack of free time. Yet, retirees — with plenty of time on their hands — do not volunteer at rates that are any higher than those of workers.

And among people who did not volunteer during their working years, just one-third finally begin volunteering during retirement.

Retirement can be especially lonely for single men

Sad senior man
YAKOBCHUK VIACHESLAV / Shutterstock.com

In some ways, retirement is more challenging for women. Because they live longer than men, they will have to stretch the funds from their nest eggs over a longer period. To make matters worse, women generally start with less in retirement savings than men do.

But women who are single have one big advantage over their male counterparts: They are less likely to be lonely.

Just 48% of retired men who live alone say they are very satisfied with the number of friends they have, according to an analysis of Pew Research Center survey findings.

However, a robust 71% of women who live alone are satisfied with the number of friends they have.

Health issues likely will catch you by surprise

Lisa F. Young / Shutterstock.com

Slightly more than one-third of retirees say health problems have put a damper on their retirement years, according to a survey from the Nationwide Retirement Institute. And 75% of those folks say their health problems emerged sooner in life than they expected.

To make matters worse, about one-quarter say health-related expenses keep them from living the retirement of their dreams. Such sobering numbers underscore why many people planning for retirement would benefit from opening a health savings account and stashing as much cash as possible into that HSA.

As you grow older, you will feel younger

Pressmaster / Shutterstock.com

Everyone has heard the cliche: “You’re only as old as you feel.”

If that is true, here is some good news for retirees: Paradoxically, the older people get, the younger they are likely to feel, according to “Growing Old in America: Expectations vs. Reality,” a paper from the Pew Research Center.

For example, among people ages 18-29, about half say they feel their age, one-quarter feel older than their age and another one-quarter feel younger.

However, among those 65 and older, 60% say they feel younger than their age and 32% say they feel exactly their age. Just a scant 3% say they feel older than their age.

Your early golden years might not gleam as you had hoped

Unhappy senior woman
Asier Romero / Shutterstock.com

Nearly one-third of recent retirees — 28% — say life is worse in retirement than it was during their working years, according to the Nationwide Retirement Institute survey.

What is the source of this gloom and doom? Money — or lack thereof.

Among those who lament post-work life, 78% cite a lack of income and 76% cite a high cost of living as the top factors in giving them the blues during their golden years.

The message to future retirees is obvious: Save early, save often and keep saving. For more tips, check out “9 Ways to Rescue Your Retirement in 2020.”

Initial disappointment will give way to later satisfaction

Happy senior couple
David Tadevosian / Shutterstock.com

If you are among those disappointed with retirement, take heart: As with so many things, retirement is what you make it. You can take steps to boost your overall satisfaction with life during your golden years.

For example, researchers at the University of Exeter in the United Kingdom found that people who volunteer are less likely to be depressed and more likely to be satisfied with life. There is even evidence that volunteers live longer.

So, if retirement has got you down, stop gazing at your navel and start looking outward at ways to help others.

A lot of other research has found that a happy marriage and spending time with close family and friends can greatly boost retirement satisfaction.

Even if you don’t take steps to make yourself happy, you might just end up feeling joyous anyway. The Pew Research Center found that 45% of adults 75 and older believe life has turned out better than they expected.

Just 5% say it has turned out worse.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

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Simple, Achievable New Year’s Resolutions That Will Make You Richer

Subscribe: Apple Podcasts | Google Podcasts | Spotify | RadioPublic | Stitcher | RSS

Losing weight, exercising more, spending less, paying down debt: all common New Year’s resolutions many make, but few stick to.

Changing the habits of a lifetime isn’t easy. But using a few simple tools makes it a lot more likely.

In this week’s “Money!” podcast, we’re going to explore some wealth-creating New Year’s resolutions, and more importantly, we’re going to talk about some ways to get on track and stay there. Who knows? This could be the year you finally build that emergency fund, plan for a successful retirement, destroy that debt or otherwise make yourself wealthier. And just maybe you’ll find that by doing it right, you’ll gain without pain!

As usual, my co-host will be financial journalist Miranda Marquit.

Sit back, relax and listen to this week’s “Money!” podcast:

Not familiar with podcasts?

A podcast is basically a radio show you can listen to anytime, either by downloading it to your smartphone or other device, or by listening online.

They’re totally free. They can be any length (ours are typically about a half-hour), feature any number of people and cover any topic you can possibly think of. You can listen at home, in the car, while jogging or, if you’re like me, when riding your bike.

You can listen to our latest podcasts here or download them to your phone from any number of places, including Apple, Spotify, RadioPublic, Stitcher and RSS.

If you haven’t listened to a podcast yet, give it a try, then subscribe to ours. You’ll be glad you did!

Show notes

Want more information? Check out these resources:

About me

I founded Money Talks News in 1991. I’m a CPA, and I have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

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