Investors seeking safe investments to protect their wealth should focus on assets with protection against collapse or institutional failure. Ordinary savings accounts, certificates of deposit, US Treasuries, and money market accounts are among the safest options. However, inflation can wipe out the value of assets, so investments tied to specific assets, such as commodities, may be a good hedge. A balanced portfolio should contain a mix of different assets depending on inflation expectations.
Many investors, particularly those who plan to retire in the near future and cannot afford to take risks with their money, try to find safe investments. There are no perfectly safe investments, as even a pile of gold under a mattress can lose value if the commodity value of gold falls and even an insured savings account can see its real value collapse in the face of hyperinflation. However, a balanced portfolio can combine investments that protect initial wealth, 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 collapse or institutional 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 bank accounts and certificates of deposit, up to a fairly high maximum limit. Individual banks may fail, but deposits at those banks are protected.
There are other safe investment options to protect the initial assets. US Treasuries are generally considered a safe investment and offer another haven for cautious capital. A slightly better rate of return, along with greater flexibility, can be obtained by placing money in a money market account. These accounts are managed in such a way that they generate modest but very safe returns, and generally lose value only in extraordinary circumstances. Even during the 2008 financial crisis, money market funds typically only lost a penny or two on the dollar.
However, early loss is not the only investment risk. Inflation can wipe out the value of assets just as surely as a default on a corporate bond issue. Bank accounts and bonds are poor hedges against inflation, since the interest rate they pay typically does not keep up with the drop in currency value during periods of severe inflation. The best safe investments to hedge against inflation are those that are tied to specific assets, as these asset prices will tend to keep pace with inflation.
Investments in commodities, such as precious metals, may fit into this category of safe investments. Certain actions can also be used to play this role. As a general rule, investments in corporations 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 be hedged 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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