When the economy goes south and the markets get wonky, many people, especially those who are close to retirement, clamor for “safe” investment assets. But what qualifies as a safe investment and are there really any such things out there for people to invest in?
Gone are the days when you could plunk your entire savings into a timed certificate of deposit or a savings account and actually receive interest on your money. Now, no matter where you put your assets, there is going to be some risk attached. The question is which options are the least volatile but still allow you to make money on your money?
The war chest is not invested in stocks. Instead, it is placed in bonds or short-term bonds. The rationale is that when you retire, if the stock market is doing fine, you can pull the income you need from those investments. When the market goes down, clients can draw money from the war chest and use it until the market recovers so they never need to touch their stock investments.
As far as less volatile investments go, McGuigan recommends short-term investment grade corporate bonds because “corporations have done a terrific job of cleaning up their balance sheets. The government has done the opposite and gotten worse,” he said. Interest rates will go up again, he said, so investing in short-term bonds, meaning from one to two years, will keep “your bonds protected a little bit. … That’s not safe, but less volatile than other things.”