Please forward this error screen to 75. I’m planning to retire soon and would best low risk high return investments to invest my retirement savings in something that’s secure and also generates high income.
Where can I find safe high-yield investments in today’s market? Granted, inflated risks on higher yielding investments may not always be apparent, and many investors lull themselves into a false sense of security by convincing themselves that higher risk isn’t there. You don’t have to look hard for instances where people stretching for plump yields got burned. For example, many investors drawn to emerging market bond funds in recent years by payouts that were sometimes more than twice that of U. And the 2008 financial crisis is replete with examples of individual investors who bought ultrashort bond funds or bank loan funds with generous payouts on the assumption that those investment were secure, only to see their values drop precipitously. All of which is to say that you need to re-set your investment return expectations, if not your entire investing strategy.
Let’s start with what “safe” investments are available to you and what they pay. If by safe you mean investments that will not put your principal or investment earnings at risk of loss — and also offer you immediate access to your money without penalty or surcharges — then you have very few options. Basically, you’re talking cash equivalents, none of which have anything close to high yields. Treasury bills and money-market funds that limit themselves to the shortest-term Treasury securities certainly qualify as safe, but their yields are a paltry 0. You can get more by shopping around for the highest-paying FDIC-insured savings accounts, money-market accounts and short-term certificates of deposit.
Some people throw other investments that have higher yields into the safe category, including short-term bond funds and dividend-paying stocks. But these investments don’t really offer the same security of principal and earnings as cash equivalents. Short-term bond funds can lose at least some money when interest rates rise, as rates almost certainly will at some point. And despite their dividend payments, dividend stocks are still stocks, so their value can drop substantially during market swoons. October 2007 pre-financial crisis high to its March 2009 low.
That doesn’t mean that stocks and bonds can’t play a role in your retirement investing strategy. In fact, they probably should play a larger role than safe investments. Well, if you think about it, you don’t need access to all of your retirement savings at once. You’ll draw on it over a very long time.
When you create this portfolio, you want to be sure that percentages you allocate to stocks and to bonds reflects your tolerance for risk and your ability to handle major market downturns. If that diversified mix of stocks and bonds doesn’t throw off the income you need from dividends and interest payments alone — which will likely be the case for most people — you can generate more income by simply selling shares as needed. In short, you’ll have a much better shot at a secure and comfortable retirement if you spend your time and energy creating a viable retirement income plan, rather than engaging in a vain search for investments that purport to offer an often-sought, but ultimately unattainable, combination of safety and high returns. Will I have enough to retire?