Investing / Strategy
Investing money inherently comes with a certain amount of risk, and it’s natural to want to put your money where it will be the safest but still yield a good return. Recently, GOBankingRates surveyed 1,045 Americans ages 18 and older about personal finance and investing. Of the approximately 68% of people who are currently investing their money, GOBankingRates learned that the highest percentage of them, 20%, felt that individual stocks were the place they felt the most comfortable investing their money, followed by almost 16% who felt an online savings account was their safest option.
When it comes to investing, safety is often associated with lower risks and more stable returns, according to Doug Carey, president and owner of WealthTrace. He added, “While there are no completely risk-free investments, there are some options considered relatively safe for the average person.”
Since not everyone has done the research to truly understand investing options, GOBankingRates turned to financial experts for some advice on what you should feel most comfortable investing in.
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Diversified Index Fund
It’s better to buy a diversified index fund rather than individual stocks, according to John Jennings, president and chief strategist of St. Louis Trust & Family Office, a wealth management firm. This is because, “Mathematically, most stocks underperform the stock market over time,” he explained. From 2000 to 2019, 74% of stocks in the S&P 500 underperformed, he pointed out. “This means that when you buy an individual stock, it’s like flipping a weighted coin, where you lose most of the time. Your portfolio will probably perform better if you buy a broad index fund that tracks the U.S. stock market or even one that tracks all global stocks. Vanguard, Fidelity, Schwab, iShares, and SPDRs all have index funds that will do the job.”
R.J. Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth, agreed, adding that “[t]hese funds automatically adjust the asset allocation over time, reducing risk as retirement approaches. They offer broad diversification and professional management at a low cost. So, not only do they require less effort, they’re likely to outperform individual stock pickers.”
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High-Yield Savings Account
General savings accounts may be safe, but they’re not as competitive a financial product because you don’t earn interest and thus your money doesn’t keep up with inflation. However, according to Carey, a high-yield savings account “is one of the safest options as it offers a guaranteed return on your savings. Rising interest rates have finally made these types of accounts competitive again and a high-yield savings account provides easy access to your funds and protects your principal.”
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Certificates of Deposit (CDs)
Another safe, but not especially high-yield, investment is a certificate of deposits (CDs). CDs are time deposits offered by banks with fixed interest rates and maturity dates, Carey explained. “They are considered low-risk investments as long as you choose reputable financial institutions. The longer the term, the higher the interest rate.” The downside of these is that you can’t touch the money until the term is up.
Another kind of stock that’s “relatively safer compared to smaller or more volatile stocks,” according to Carey, are blue-chip stocks, which are those associated with well-established, financially stable companies with a long history of success. “Blue-chip stocks are typically associated with companies that have a strong market presence, solid balance sheets, and consistent dividends.”
Exchange-Traded Funds (ETFs)
Exchange-traded funds (ETFs) provide investors with a diversified investment strategy by offering exposure to a diverse array of assets, thereby reducing the risk that is associated with investing in individual stocks, according to Michael Hammelburger, the CEO and financial advisor for The Bottom Line Group, a cost segregation firm. “ETFs are traded on stock exchanges, which makes them available to the average investor because stock exchanges provide liquidity.”
Gauge Risk Tolerance
The truth is that what is safe for one person may not be for another, according to Ryan Bannister, a licensed CPA and the founder of a financial planning firm 1Up Financial Advisors. “As a CPA and financial planner, I help my clients answer these based on their time horizon (i.e. how long they have to invest), their short- and long-term goals, and risk tolerance.”
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He added, “From my perspective, investments considered the ‘safest’ generally include fixed income securities like U.S. Treasuries, as they’re government-backed, and Municipal bonds, as they’re issued by state and local governments,” he said. Though, overall, like most financial planners, he recommends “a well-diversified portfolio of equities.”
Seek Professional Advice
Learning how to research stocks and invest for quality is a skill that most people can learn, but it is very time consuming, according to Asher Rogovy, chief investment officer with Magnifina, LLC. “A professional investment manager can help clients build and maintain a bespoke portfolio of individual stocks. Beware of advisors who recommend passive index funds and charge fees to manage these portfolios. We feel this approach isn’t economical because clients pay double fees: fees to the advisor, and fees to the underlying passive funds.”
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Methodology: GOBankingRates surveyed 1,045 Americans aged 18 and older from across the country between May 1 and May 4, 2023, asking thirteen different questions: (1) Have you ever followed money advice from a well-known expert?; (2) What is your primary source for money (personal finance) advice?; (3) What would be your LEAST likely source for money (personal finance) advice?; (4) In the past year where have you sought out money (personal finance) advice? (Select all that apply); (5) Would you ever follow money advice you found on Social Media?; (6) Would you ever follow money advice from a popular mogul/influencer? (i.e. Mark Cuban, Dave Ramsey, Suze Orman, etc.); (7) What would you like to learn the most about in order to improve your personal finances?; (8) What do you look for in your sources for personal finance information? (Select all that apply); (9) Have you bought a book on personal finance/money advice in the last year?; (10) Have you subscribed to a podcast on personal finance/money advice in the last year?; (11)In an economic downturn where do you invest your money? (Select all that apply); (12) Where do you feel most comfortable investing your money?; and (13) Where do you get retirement advice from? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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About the Author
Jordan Rosenfeld is a freelance writer and author of nine books. She holds a B.A. from Sonoma State University and an MFA from Bennington College. Her articles and essays about finances and other topics has appeared in a wide range of publications and clients, including The Atlantic, The Billfold, Good Magazine, GoBanking Rates, Daily Worth, Quartz, Medical Economics, The New York Times, Ozy, Paypal, The Washington Post and for numerous business clients. As someone who had to learn many of her lessons about money the hard way, she enjoys writing about personal finance to empower and educate people on how to make the most of what they have and live a better quality of life.