Low Risk Retirement Strategies

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RETSorry, but the phrase “safe high-yield investments” is an oxymoron, like jumbo shrimp and honest politician. Investments that promise fatter yields or hold out the prospect of above-average returns always come with more risk, whether it’s in the form of more volatile returns or loss of principal. If anything, it’s even more dangerous to stretch for loftier yields and returns today given the wild swings we’ve recently experienced in stock prices, the iffy shape many economies are in around the globe and the possibility of higher interest rates in the not-too-distant future.

Granted, inflated risks on higher yielding investments may not always be apparent, and many investors lull themselves into a false sense of security by convincing themselves that higher risk isn’t there. But make no mistake, it’s always lurking somewhere, ready to ensnare anyone who forgets there’s no free lunch in the investing world.

You don’t have to look hard for instances where people stretching for plump yields got burned. For example, many investors drawn to emerging market bond funds in recent years by payouts that were sometimes more than twice that of U.S. Treasuries have experienced double-digit losses over the past 12 months, as growth prospects for emerging market economies have begun to fade in the face of China’s economic troubles and falling commodity prices.

And the 2008 financial crisis is replete with examples of individual investors who bought ultrashort bond funds or bank loan funds with generous payouts on the assumption that those investment were secure, only to see their values drop precipitously.

All of which is to say that you need to re-set your investment return expectations, if not your entire investing strategy.

Let’s start with what “safe” investments are available to you and what they pay. If by safe you mean investments that will not put your principal or investment earnings at risk of loss — and also offer you immediate access to your money without penalty or surcharges — then you have very few options. Basically, you’re talking cash equivalents, none of which have anything close to high yields.

Treasury bills and money-market funds that limit themselves to the shortest-term Treasury securities certainly qualify as safe, but their yields are a paltry 0.01% or so these days. You can get more by shopping around for the highest-paying FDIC-insured savings accounts, money-market accounts and short-term certificates of deposit. But you’re still talking only 1% or a bit more a year. (“Rewards” checking accounts may offer higher yields, but they typically have caps on how much you can invest and/or make you jump through all sorts of hoops to get the higher rate.)

Read more at MONEY CNN