Investment No-Brainers: Make Money, Sleep Easy

By Martin Brown

It’s all about “risk aversion”: If you want to play it safe with your hard earned savings, and a lot of us do, there are relatively safe, and conservative investment strategies that won’t have you tossing and turning at night.

Of course it all depends on your definition of the word “safe.” 

There was a generation after the Great Depression, mostly our grandparents or great grandparents, who were not comfortable with putting their money away in a bank earning a modest amount of interest. With the advent of Federal Deposit Insurance Corporationor FDIC—nearly all of us went back to using banks, but there was still a small minority who would stuff cash in the mattress or bury it in used coffee cans in the backyard. Not always a wise move when the house caught fire, or a flash flood washed away the back yard, and those old cans of money too.

US Treasury bonds have long been considered the safest place to stash your money, but their growth can lag well behind that of inflation. Not a good idea for diligent young investors hoping to retire on their savings one day. In other words, a serious saver in 1973 who purchased treasury notes as their principal investment instrument, would have retired in 2008 with fewer actual dollars, once adjusted for inflation, than whatever amount of money they saved over the past thirty five years. That’s not a great feeling. Of course it beats seeing a handful of volatile stocks crash and burn taking your hard earned savings along with them.

The truth is there is no easy answer to what’s a smart and safe path to a secured retirement. Growing at less than the rate of inflation is not terribly wise, nor is losing significant sums of money on high risk stocks a road to riches, or a good night’s sleep.

Consider taking a path that creates a balance between all three levels of risk: low, moderate, and high. Some of us can create that balance on our own. Most of us, however, need to work with a trusted financial advisor to get there.  But here is a simple idea of what a balanced financial portfolio can look like:

1. Take any size nest egg, $3,000, or $300,000, and divide it into three approximately even portions.
One third might be in municipal bonds, one third in what is called cash equivalents, which are money markets, treasury notes, and alike. Then an additional third is put into a more aggressive investment such as a stock growth fund. In this last third, you can again also adjust the investment to match your tolerance for risk; going with a stock fund that focuses on emerging opportunities or a fund that rides with established firms that have long histories of steady, if not exciting, growth.

2. Think outside your usual economic envelope.
In today’s investment world the variety of investment opportunities stretches to the boundaries of your imagination and beyond. From funds that invest in developing green technology companies to funds that focus strictly on emerging nations. You cannot only express your tolerance level through your investment strategy you can express your values and geopolitical views as well.

Finally, whatever you do, promise yourself that you will take an hour a week to read various market news information.
The informed investor is most often the wise and prudent investor. It’s your money, and your future. Treat it with care and respect. If you do, it will be there for you when the time comes to stop making the dollars and enjoy all the dollars you have made.

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