Is there such a thing as a truly “safe” investment? The short answer is that no
investment is 100% safe, but there are certainly some investments that are better than others at protecting your hard-earned savings.
Written by Tim Lemke (WiseBread.com)
Let’s examine some of the most common “safe” investments and learn how good they actually are at shielding you from financial losses.
1. Cash
You may not be able to stomach the ups and downs of the stock market, and don’t want your money tied up in bonds or other fixed-income investments, so you just hold on to large quantities of cash in a basic savings account, a money market account, or certificates of deposit.
Why It’s Safe
Cash won’t dive in value if the stock market crashes. You can get a predictable return from interest by keeping it in a bank account – and you can access it any time you need it.
Why It’s Not
If you have a lot of cash, you can actually lose money in the long-term if there is inflation but, most importantly, putting too much of your investment portfolio in cash will make it hard for you to accumulate the kind of wealth you’ll need for a comfortable retirement. Cash is also easy to access, which means it’s too easy for you to spend.
2. Dividend Stocks
Dividend stocks are generally issued by companies that don’t usually see a lot of volatility, but will pay out a healthy percentage of their income back to shareholders. Dividend stocks are often used by older investors or anyone looking to boost income without a lot of risk.
Why It’s Safe
Good dividend stocks will pay out a consistent amount to shareholders each quarter, and it’s usually a better return than bonds. By nature, dividend stocks won’t go way up and down in price like other stocks, so they aren’t as vulnerable to big market downturns.
Why It’s Not
They are still stocks, and any stock is potentially vulnerable to market swings. Even dividend stocks will lose value in a down market, so it’s still possible to lose money. On the flip side, dividend stocks won’t rise in value like other investments when the market goes up. Moreover, dividends are never guaranteed; a company can cut its dividend at any time if its revenues drop.
