Investment Products

Investors are advised to have a mix of investment instruments in their portfolios to help mitigate the chances of huge financial losses. One such tool many investors choose are traditional CDs as they are safe, backed by FDIC insurance against bank failures, are short term, low-risk, and provide a guaranteed rate of return. Many investors working towards their retirement goals may opt for fixed rate IRA CDs as a way to add to the mix. However, using solely IRA CDs as your retirement strategy will ultimately limit the amount of money you have available for that long term goal.

IRA CDs will guarantee a rate of return, though the rate earned is typically lower than the money that can be made off of other higher risk investments. The exchange for ensuring your principal will remain intact and for the guarantee of earning some money is earning a low interest rate over the period of the investment.

The rates will also be lower for IRA CDs because of the type of investments that feed them.Common Securities are the investment instruments that compose most IRA CDs. Again, they are extremely safe but do not have the earning potential associated with higher risk investments such as stocks or mutual funds.

Like with any CD, once invested in an IRA CD your money will be tied up until the maturity date of the IRA CD. While the money is tied up financial professionals use that money that you've invested and reinvest where ever they see fit. With the gains of the reinvestment, banks will then pay you the gains on the interest once the IRA CD matures.

If you are a conservative investor, an IRA CD is a way to ensure you will have some money when you retire. However, as with all investment strategies, an IRA CD should not be your only investment plan. Also look into mutual funds, money market accounts, savings bonds, and corporate bonds.

After the recent financial crisis, many people begin to think that no investment is safe. Luckily, this is not quite true. Let us review the lowest risk options available to an individual investor.

At the top of the list are US bank accounts. The cash in your bank account is insured by FDIC, and FDIC itself is backed by full faith and credit of the US federal government. The chance of the US government defaulting on its obligations is really tiny. Remember, however, that FDIC does not insure the full balance in your account. Normally the insurance limit is $100,000 per bank, so if you have $300,000, you should spread it over 3 accounts at 3 different banks. Right now, this limit is temporarily raised to $250,000.

The second place is taken by money market funds. Money market funds are not insured by the government, but they are very carefully monitored by regulators and they invest in an extremely conservative way. As a result, in their nearly 40-year history, there have been only a couple cases where investors lost their principal. Even then, the losses didn't exceed 3 cents on the dollar. You can freely withdraw money from a money market fund at any time.

The third place is taken by US Treasury bonds. This security is also backed by the US federal government. There is some risk, however. If you buy a 10-year bond today for $1000, you may find that its price falls to $800 a year from now. Sure, after 10 years, you will get the full $1000 from the government. But the market price of the bond depends on many factors that change quite quickly. Therefore, if you may need your money soon, this investment isn't as safe as it might look. The shorter-duration Treasury securities (such as Treasury bills) are as safe as bank accounts, since their price doesn't change much.

Now one might ask, how safe is gold? Many people think gold is safer than anything else. If the unthinkable happens, such as the US government collapses and the country descends into anarchy, neither bank accounts nor cash currency would hold much value. But gold is likely to still be valuable; in fact, its value might even go up, since no other convenient method of payment would be available.

However, think about a different scenario. You buy some gold in 1980 for about $650 an ounce. Then you watch your savings evaporate, as its price falls to $300 just two years later. Referring to the data below from goldprice.org, you can see the volatility of the past 36 years. How safe is that? After all, if you only think about the "end of the world" scenario, gold is great. But if you consider the more realistic future, it turns out gold is as risky as stocks.

So, the final answer is that the safest investment available today is an FDIC-insured bank account. Just remember to watch the insurance limit, and spread your funds across several banks if needed.

The recent banking crisis and the Madoff fraud taught everyone to be cautious. Some people might want to put a significant part of their portfolio into very safe investments. Even the more risk-loving investors usually prefer to have some riskless assets.

Money market is the most...

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