How to Chose Safe Money Investments

Choosing investments wisely involves balancing risk with the potential for returns. If you're looking for safe places to invest your money, you may be sacrificing large returns for stability and insurance. However, consumer and financial advocates typically recommend that you allot at least a portion of your money to safe investments to offset the risk of other volatile, less-assured investments.

Instructions

1. Decide how much cash you'll need in the next year. Place this amount of money in an extremely liquid account, such as a money market fund or high-yield savings account. These investments usually carry FDIC insurance, which guarantees your money in the event of a bank failure, and allow you access to your money at any time.

2. Think about your income or financial needs for the next three to five years. Invest the money you won't need until then in no-risk investments, such as certificate of deposit accounts, Treasuries and bonds. The federal government guarantees Treasury notes and bills while most CDs are FDIC-insured. Corporate bonds carry the most risk out of the three types of investments but are pretty low-risk overall. With these safe investments, you might earn 4 to 5 percent on your money, depending on factors like the length of time you have it invested and -- if investing in bonds -- whether the bonds are government or corporate-owned.

3. Factor in your age when choosing the type of investment. Appropriate a larger portion of your money to safe investments, such as bonds, as you get older so that you'll have money and less of a chance of losing it the closer you get to retirement. For example, you may allot 100 percent of your money to stocks while you're in your 20s and 30s because you have more time to make any money back that you lose. When you reach 60, devote at least 30 percent to 50 percent -- if not more -- to bonds, Treasury bills and CDs.

4. Look for mutual funds, stocks and other investment funds with the help of independent investment research analysts, such as Morningstar and The Street. For example, Morningstar analyzes mutual funds based on historical performance and generates a risk rating. Choosing a fund with a "low" risk rating means you're choosing one that's safer than other funds. Other analysts and investment publications may classify stocks and funds based on volatility. In either case, look at the rating with the lowest volatility or risk to select safe money investments.

5. Look for companies that have a solid history of earnings growth and that pay dividends. Generally, these companies, mostly known as "blue chip" stocks, represent stable investments in the stock market. Blue chip stocks make up the Dow Jones Industrial Average and include a mix of utility and telecommunication companies, oil and gas, aerospace and technology companies.

References

• The Motley Fool: Step 8: Cover Your Assets
• FDIC; Insured or Not Insured?; April 2011
• The Motley Fool; CDs Aren't Just for Grandma Anymore; Dan Caplinger; April 2007
• The Motley Fool; Low-Risk Investments for Volatile Markets; Amanda Kish; June 2011
• Morningstar; FAQ: The Morningstar Rating for Stocks; Pat Dorsey; January 2008
• The Street: About Us

Resources

• Read this Article in Spanish