Investors seek safe investments to protect their money, but no investment is perfectly safe. A balanced portfolio can protect initial capital through guarantees against inflation. Savings accounts, CDs, US Treasuries, and money market accounts are safe options. Inflation can wipe out the value of assets, so investments in concrete assets like commodities and stable companies can protect against inflation. A conservative portfolio should contain a mix of different assets.
Many investors, especially those who plan to retire in the near future and can’t afford to take risks with their money, attempt to seek out safe investments. There are no perfectly safe investments, as even a pile of gold under a mattress can lose value if the value of gold as a commodity falls, and even an insured savings account can see its real value plummet in the face of hyperinflation. A balanced portfolio, however, can combine investments that protect initial capital, often through guarantees that protect against inflation.
Safe investments that seek to preserve initial value will generally focus on assets with protection against the risk of institutional collapse or failure. Ordinary savings accounts and certificates of deposit are among the simplest and safest investments in this category. The Federal Deposit Insurance Corporation, or FDIC, collects fees from banks and, in return, guarantees most forms of ordinary and CD bank accounts, up to a certain high limit. Individual banks can fail, but deposits in those banks are protected.
There are other safe investment options to protect your initial equity. US Treasuries are generally considered a safe investment and offer another haven for prudent capital. A slightly better rate of return, along with greater flexibility, can be achieved by placing money in a money market account. These accounts are managed to generate modest but very secure returns and generally only lose value under extraordinary circumstances. Even during the 2008 financial crisis, money market funds typically only lost a cent or two on the dollar.
However, loss of principle is not the only investment risk. Inflation can wipe out the value of assets as much as a default on a corporate bond issue. Bank accounts and bonds are poor hedges against inflation, as the interest rate they typically pay doesn’t keep pace with the decline in the value of the currency during times of high inflation. The best safe investments to hedge against inflation are those linked to concrete assets, as these asset prices will tend to keep pace with inflation.
Investments in commodities, such as precious metals, can fall into this category of safe investments. Some actions can also be used to fill this role. As a general rule, investments in companies with a proven track record of aiming for slow and steady growth and stability, particularly when held through a mutual fund to add an extra layer of diversification, can protect against inflation. A conservative portfolio should contain a mix of different assets that will vary depending on whether inflation seems likely in the short to medium term.
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