Want to keep your nest egg safe? Use these six rules to learn how to find safe investments, and see where they belong within the context of your retirement income plan.
1. See Which Types of Investment are Considered Safe
No investment is completely safe, but these five are considered to be among the safest investments you can own. Their primary purpose is to protect your principal. A secondary purpose is to provide interest income. You're not going to get high returns from these choices, but you won't see losses either.
2. Learn How Safe Your Safe Investments Really Are
All investments have risk, even “safe” ones. You are exposed to three types of risk with safe investments; the potential to lose principal, loss of purchasing power due to inflation, and the risk that comes with illiquidity, which can occur when safe investments contain surrender charges or maturity dates that are a long way off. Sometimes safe investments are not quite as safe as you think they are.
3. Figure Out How Much of Your Money Should Be in Safe Investments
At a minimum you want to keep three to six months worth of living expenses in safe investments. The less secure your employment, the more money you want to keep in safe investments. The closer you are to retirement, the more money you want to keep in safe investments. Ideally you will match up your safe investments with your cash flow needs, so safe choices are used to fund your near term living expenses.
4. Develop Realistic Rate of Return Expectations
What kind of investment returns, or approximately how much investment income, would you expect to receive from safe investments? It depends on the year. This table will show you past safe investment returns from 1973 through last year. With current interest rates at historical lows, you shouldn't expect much income from safe choices.
5. Learn to Recognize and Avoid Bad Investments
One key to making safe investments is learning how to avoid bad investments. You can bypass many a bad investment by knowing what to look for. Avoiding big mistakes might be the most important factor in your success. Most bad investments can be avoided by using these five simple rules.
6. Utilize Investments That Provide Guaranteed Retirement Income
Although not technically an investment, finding guaranteed retirement income definitely falls in the same category as safe investing. After all, how much safer can you get than "guaranteed"? Guess it all depends on where the guarantee comes from. The primary sources of guaranteed income are Social Security, pension plans, and annuities. These choices provide a great foundation to a secure retirement income plan.