Many things are uncertain in life, but one certainty is that the stock market will always experience corrections, pullbacks and bear markets.
Throughout the 300-year history of financial markets, stock markets have risen to euphoric heights and fallen in spectacular crashes.
Most long-term investors ride out these bumps just fine. The baby boomers currently entering retirement survived the 2001 internet crash and the 2008 subprime mortgage crisis.
So sitting tight works, but is it enough? If the market enters a bear market, don’t rush to sell off stocks. Everyone else will be doing the same and prices will plunge.
Nobody wants to put their retirement savings at risk of a free fall. Giving up some risk and return on safer investments can help you achieve a soft landing.
The investment industry is not deaf to the fact that more investors in the market are seeking safer places to stash their money in exchange for higher returns.
Many traditional safe havens such as savings accounts and bonds are providing more upside potential. If you’re looking for more pep from your low-risk investments, consider these options.
1. Buy some bond ETFs
Fixed income investments are your most reliable but boring friend. He is always there for you but the risk taker in you is always looking for a guy who is more exciting.
Bond exchange-traded funds (ETFs) offer the best of both worlds. They trade like stocks so you can move in and out more easily when you want something different. Bond funds can offer a taste of excitement through diversification.
One option is to seek out high dividend yielding ETFs. Or a government bond fund may be spiced with a few riskier, high yield corporate bonds. In a tougher loan market, Asian companies are paying higher yields to attract investment.
Or you may choose a bond diversified across the Asian region – a portfolio of low-risk bonds in South Korea, Malaysia and Singapore spiked with some high growth Chinese bonds.
ETFs are generally cheaper than mutual funds and holdings, and performance is disclosed daily, whereas you may only find out about changes to your mutual fund once each quarter.
Start with an ETF Comparison Tool to compare ETFs by performance, cost, and dividend yield.
2. Put money in money market accounts
If you want more bang for your dollar than a savings account or certificate of deposit will give you, invest money in a money market account.
Money market accounts pay higher interest rates than savings accounts while preserving principal but add high fees for withdraws. The average account will allow six to 12 withdrawals per year for free.
If you are willing to accept single-digit returns from money market interest rates, you can avoid the risk of the next market crash.
There are some nifty ways to get an even higher return. In exchange for putting more money in a market account, you will be offered a higher yielding account.
3. Open a high-yield savings account
Savings accounts are a safe investment but with today’s low-interest rate environment, your money may not beat inflation. Savers are desperately scanning savings account offers for higher returns.
Many savings accounts pay a higher interest rate if you deposit a minimum amount. Further bonus interest rate increases may be paid for using bank products.
Banks want all your business – insurance, mortgage, investment, and more. So don’t be shy about asking for higher returns on your money.
4. Invest in annuities
Annuities are a type of life insurance policy that guarantees you a fixed payout in a lump sum or regular payments (typically monthly) at a future point in time.
This payment structure makes annuities a great retirement savings vehicle. In exchange for 20 years of monthly payments, for example, at age 65, your annuity will start paying you a fixed monthly sum, or you may be eligible for one lump sum payment.
Investment-linked annuities provide direct exposure to the stock market and other securities. The performance of your annuity depends on the performance of the underlying stock funds.
Annuities are sold as with-profits annuities provided by your annuity provider or unit-linked annuities tied to funds you choose to invest in.
Most investment-linked annuity providers offer a range of several dozen sub-funds across the risk spectrum.
Unlike a standard annuity, which is an insurance product, your returns may not be guaranteed in an investment-linked product.
Your exposure will be similar to investing directly in the stock market. An annuity is a life insurance product, so you cannot buy and sell it like a stock or ETF.
Weigh all your options and be aware of the different risk profiles of an annuity versus investment-linked annuity.
As always, the best way to protect your assets in a market decline is to diversify your portfolio.
It is tempting to be overexposed to China these days, even after China has sent the stock market on several tumbles lately. Many analysts have shrugged off the fast-growing economy’s growing pains. Some slowdown is inevitable.
More tempered growth in China does not mean other economies in Asia or elsewhere will falter.
However, recent selloffs should serve as a reminder to crash-proof your portfolio. Once prices are in free fall, it will be harder to get out as your portfolio value is declining.
This article first appeared in The New Savvy.
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