Whenever I have a conversation with one of my new followers, I often get asked about “conservative investing,” a term that gets thrown around a lot.
I’m always curious what they mean by “conservative.” Presumably, conservative means safe and low risk.
Most people have a certain amount of money they don’t want to take much risk with. Those funds usually come from the stock market, municipal bonds or mutual funds.
If you ask me those investments are anything but “conservative.”
A Bit of History
We’ve had several major corrections in the last thirty years: 1987, the early 90s, the Dotcom bubble, the 2008 Recession.
If something of equal caliber happened again today, would your funds be safe? Probably not.
During a recent Federal Reserve meeting, Janet Yellen, Chair of the Board of Governors of the Federal Reserve System referred to the current stock market valuations as “rich.”
I’m guessing the term “rich” refers to the fact that while corporate earnings have not significantly improved over the past three years, the Dow Jones Industrial is up about 25%.
For the most recent example of market correction, let’s talk about what happened in 2008. The value of single family homes skyrocketed. Suddenly people with no money or credit were buying multiple homes. At the time, not getting in on the action may have seemed like a lost opportunity.
I know people (and I’m sure you do, too) who lost 40% or more of their net worth in the stock market. Many people lost investment properties because they were overleveraged with loans that got called and had no backing.
How to Invest NOW
If you ask me, we are due for a recession and a market correction. It’s been almost ten years since the last one and they seem to happen just about every decade.
In fact, it’s not a matter of if, it’s a matter of when, and sadly we have no control over when that will be or the outcome.
I say all that to say this: exposing your money to equity markets is anything but conservative.
Hey! Hold on a sec.
What about investments, such as certificates of deposit or money market accounts backed by the federal government? Surely these are considered “conservative?”
I disagree. Let’s look at what you’re earning with one of these examples:
Let’s say you’ve got a CD and you’re earning less than 1%.With consideration to taxes (federal and state), you’re making less than .5%.Throw in a bit of inflation (around 6%, as of October 2017) and your purchasing power is decreased even more!
Is that really a conservative investment?
Basically, you’re taking your money and shrinking it. Call me crazy, but nothing about that sounds “conservative.”
Take Control of Your Financial Freedom!
Why rely on the uncertainties and instability of the stock market, when you could invest your money in a more worthwhile way, with greater returns and more control?
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