Where can investors find safety without taking on too much market risk? Here are some important ideas:
Annuities
Annuities have a contractual guarantee. The insurance company issuing the contract takes on some or all of the market risk.
If the stock market or bond market crashes, the annuity company is still obligated to fulfill its promises to the annuity holder. No mutual fund, stock or bond can offer that guarantee. This is what sets annuities apart.
Where safety of capital is absolutely required, you may wish to consider fixed annuities which are designed to provide a guaranteed annual rate of return, regardless of market events.
Fixed annuities are appropriate for those who want a guaranteed rate of return on money they won’t need for several years. If you need to guarantee a set minimum amount of income for life or for the joint lifetimes of yourself and a loved one, and you will need the income to begin flowing immediately, you may consider a lifetime income annuity. Both are guaranteed to deliver as promised.
Annuity assets grow tax-deferred, as long as you leave them in the annuity. For maximum safety, work with us to select annuities from carriers with high ratings for financial stability and liquidity.
Bonds
Bonds are simply IOUs from a corporate or government to a lender. Some bonds, usually called “high yield” bonds, come with substantial market risk. Others come from very solid, established corporations with decades of consistent earnings that are more than enough to cover interest payments, and pay back the loan when the bond matures. As with all investments, there are risks involved with owning a bond or money market instrument. Please consult our licensed professional if you have questions, or want more information regarding these risks.
U.S. Treasury bonds – Treasury securities are backed by the full faith and credit of the United States. Because the U.S. Treasury has both the power to tax and to print money to cover obligations, its bonds are considered the gold standard. Bond prices may fluctuate over time – the longer the bond’s duration, the more you can expect the bond price to fluctuate.
Municipal bonds – those issued by states and cities – feature interest income free of federal taxation. They are popular among individuals in higher tax brackets.
Corporate bonds – Those interested in safety may consider investment-grade bonds. There is an element of risk here, so planners look for bonds from companies with long records of consistent earnings sufficient to pay interest and return the face amount of the bond at maturity.
Bond mutual funds– These are just mutual funds with many bonds in them. Safety-conscious investors may consider a short-term bond fund for price stability. With mutual funds, there is no single maturity date on which you can expect to receive a specific lump sum.
We can help you build a diversified portfolio of bonds and bond funds to help meet your financial needs while keeping risk down.
Money markets -Money markets are essentially mutual funds that focus on secure, liquid, short-term investments. Money market portfolios consist of short-term treasuries, and high-quality, short-term corporate debt. They have historically been secure places to park cash.
The right safe money investment or combination of investments for you depends on your situation, including your risk tolerance, time horizon and your need for income. To get started constructing the ‘safe money’ portion of your portfolio, call us.