In the midst of a global pandemic, the stock market crashed and then recovered to reach record highs. This has happened despite a grim economic picture. The disconnect between the market and the economy has many investors worried about how to make safe investments going forward. What are the safest investments today? Are there any safe investments with high returns? Are there any safe investments for seniors? And, what are some quick return investments for those willing to jump into and out of the market? What is the safest way to invest money today?
Safest Way to Invest Money
The safest way to invest money is to put it in a bank account in the USA. The Federal Deposit Insurance Corporation insures each and every account up to $100,000. This applies to checking and savings accounts as well as certificates of deposit. The next best choice for safety is to purchases US Treasuries. They are backed by the US Government. In each case, you are accepting low interest rates in return for safety of your investment capital. If you are looking for AAA corporate bonds, Johnson & Johnson and Microsoft are rated AAA. These are not insured but safe investments.
Safe Investments for Seniors
The best investment advice for seniors is to rotate out of risky, growth investments as retirement nears. This means moving into value stocks, bonds, CDs, and US Treasuries. You are giving up the chance for faster gains but ensuring that your investment capital does not disappear during a market crash just when you need it to survive. The chief worry with this approach in an era of extremely low interest rates is that you will outlive your savings. Thus, many experts suggest that you keep part of your portfolio in value dividend stocks with the possibility of continued growth over the years. You can take the dividends as income or use a dividend reinvestment plan to keep growing that part of your portfolio.
Quick Return Investments
If you are looking for a quick return on your investments, you are trying to time the market. This rarely works over the long term but there are times when quick returns are possible. One of these happened early in 2020 when the Covid-19 pandemic caused the stock market to crash. Using the CAPE ratio as a guide, investors could see that the crash had taken value stocks down too far considering their long term value. This is the essence of intrinsic value investing, discovering stocks that have long term potential that outshines their current market prices. This approach can be very profitable over the long term or provide good short term profits as well. However, the conditions need to be exactly right for it to work in your favor.
If you want to know how much an investment will return, you can use an investment calculator such as the one at investor.gov. This tool helps you by calculating compound interest or appreciation for predictable investments. It can be applied to long term CDS, a savings account, US Treasuries, AA and AAA bonds, and dividend stocks that have stood the test of time. It is of no worth if you are investing in penny stocks during a pump and dump scheme in which you are led to believe that last year’s 20% gain will be repeated every year into the distant future.
Safe Investments with High Returns
The safest investments rarely offer high returns. But, dividend stocks that have paid dividends for decades or even more than a century are safe and often provide growth opportunities. Despite the use of the terms growth stock and value stock, these are not exclusive categories. Over the long term value stocks as a group tend to outperform growth stocks as a group. This is because so many growth stocks fizzle out or only provide short term growth.
Choosing Your Investment Wisely
Apply what you know in life and in business to your investments. Peter Lynch who ran Magellan Fund decades ago gave a good example. In the late 1970s a popular investment was to buy and lease railway boxcars. When this was done correctly the investor could depreciate the value of the boxcar and gain income as well. This sort of investment was sold to professionals like doctors who made lots of money but had little time to study investments. The problem with the investment was that too many investors never found anyone to lease their boxcars.
During the same time, the drug Tagamet (Cimetidine) was discovered. This acid-blocker absolutely changed how doctors treated stomach and duodenal ulcers. The drug sold like hotcakes and Smith, Kline & French stock went up like a rocket. But, doctors who saw this happening in their professional lives were still buying boxcars and losing money while not buying stock where their expertise should have given them insight.
How to Make Safe Investments – Slideshare Version