Safe money refers to certain types of no-risk or low-risk financial vehicles and accounts where principal is protected, regardless of what happens in the stock market. Often, there will even be a guaranteed rate of return offered on particular safe money options.
Some examples of safe money alternatives can include the following financial vehicles:
– CDs (certificates of deposit)
– Money market accounts
– Fixed annuities
Preferred stocks and dividend-paying stocks can also be considered safe money tools, as these investments don’t typically fluctuate a lot during stock market increases or downturns. You can often generate a regular income stream using these particular financial vehicles, as well.
The “tradeoff” for the protection of principal with safe money investments is usually a lower return or interest rate than other higher-opportunity investments that could substantially increase in value – but could also incur a loss.
Typically, safe money investments and accounts are preferable if you are already retired or approaching that time in your life. This is because a loss of principal could have a significant impact on the amount of income you’ll generate in the future – and this, in turn, can cause you to reduce your lifestyle in retirement. Likewise, going with safe money investments can help to reduce financial stress and make retirement more enjoyable.
Before deciding on any type of safe money strategy, it is recommended that you discuss your short- and long-term financial goals with a retirement income specialist who can develop a customized plan for you.
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