The challenge facing investors today: how to put together the best investment strategies to make your money can grow without too much risk. Stock funds and bond funds are always part of the mix for most folks, and so are good safe investments. Looking down the road, there could be more trouble in the world’s debt markets; and America’s plans to stimulate a luke-warm economy by lowering interest rates to new lows might not have the intended effect. So, let’s look at how to stay out of harm’s way in 2019 and beyond in case another shoe drops, starting with what are and what are not safe investments.
Going into 2019, bonds and bond funds were like magnets for people who wanted higher interest income in relatively safe investments. Compared to other alternatives investors got higher interest income, but many people don’t understand the safety issue. Truly safe investments are fixed in nature, pay interest, and do not fluctuate in value. Bonds have a fixed interest rate but fluctuate in value as they trade in the open market. Bond funds have worked well for average investors over the years as interest rates have fallen to historical lows. Don’t push your luck here.
The flip side: when interest rates and/or inflation heat up bond funds holding long term bonds in their portfolios will be anything but safe. They will lose significant value. Your best investment strategy here is to go with intermediate and short-term bond funds. You will make less in interest income, but these funds are definitely safer than long term funds. Money market funds are safe and will pay higher interest income as rates rise. There’s only one problem with them for 2019. Unless or until interest rates take off, they are paying next to nothing.
The real challenge until rates move up is in finding good safe investments that pay a respectable rate of interest… without locking in a rate for too long. No one could have predicted mortgage rates at less than 5% or 5-yr CDs at less than 2%, but it happened. Your best safe investments might not be found in mutual funds in 2019, but you may be overlooking some options elsewhere. If you are in a retirement plan (like 401k) you may have a fixed or stable account available. If you own a retirement annuity or universal life policy it may have a guaranteed minimum interest rate. In either case the interest rate could be quite attractive relative to other options.
Stocks and bonds are still the cornerstones of a good investment strategy. And for the vast majority of people mutual funds are the best way to invest in both. We’ve discussed how to move toward a safe investment strategy in bond funds. With stock funds we can do this in two different ways: by increasing diversification and by favoring conservative funds with a good history of paying dividends. We’ll start with the latter.
When the economy and/or optimism are growing, growth and small-company stock funds are often the best investment. These funds can grow dramatically in value as stock prices run up, but they rarely pay much in the form of dividends. In times of high uncertainty equity-income funds that invest in high-quality dividend paying stocks can be a step in the safe direction. If the market goes south they should be less volatile on the down side, and the dividends they pay can cushion the blow somewhat.
The best investment strategies for stock (equity) funds in 2011 and beyond will focus on increasing your scope of diversification. Too many Americans own general diversified equity funds that only invest in U.S. stocks, and ignore the rest. One of the best ways to get more diversification is with international and global equity funds. Another way is to add specialty stock funds to your portfolio. Gold funds have been one of the best investments for several years, but history shows that gold can get real cold real quick. Don’t put more than 5% of your investment dollars in gold funds. Consider natural resources, real estate, and basic materials specialty funds as well to add even more diversification.
The best safe investment strategies going forward will focus on reducing risk in the stocks and bonds department, while getting the best rates available on the truly safe investments in your portfolio. With increased diversification you can lower your overall risk and still make your money grow over the longer term. If another financial crisis rears its ugly head… you now have investment strategies geared to the safe side to keep you out of major trouble in 2011 and beyond.
Believe it or not, your return on investment can be controlled to some extent. You just need to know what to do to control that. Luckily, there are three ways in which you can safely achieve your return on investment and those ways are speed or return, personal cash control, and leverage.
The first, speed of return, is the way in which your yearly compounding rate can be increased so that your turnaround cycles are faster. The ideal strategy is to find an investment that has a one to two week cycle. This is going to prove to be much stronger than your yearly cycle and will yield a better investment.
Personal cash control is the second idea behind a safer investment. You should have access to your cash when you need it. That is so you can jump at any opportunities that come your way. You don’t want to see the opportunity of a lifetime and not be able to take it. Those with available funds are those who find the best opportunities.
Your last safe idea is leverage. You can use borrowed money to turn your $500 account into a $5,000 account. If you’re looking at a 10% yield, you can make $50 on $500, but you don’t want to make 10%. You want to make 100% or more, which is very possible.
So if you exercise these ideas and do so the right way, you’ll be able to increase the return on your investment significantly. You want to be able to put considerably more money into your pocket than what you invest.
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