(Source: The Orlando Sentinel)
After the worst year for the stock market in decades and a financial crisis that has rocked the nation's banks, who could blame investors for wondering whether there is any safe place to put their money now?
Yet, experts insist, there still are secure places to protect your cash and be in a position to profit when the market recovers.
Exactly what to do depends on how close you are to retirement, how strong your risk tolerance is and how badly you need your money now in a recession that already has wiped out millions of jobs.
But before doing anything, people need to save. There is no substitute for the systematic, automatic, bite-the-bullet socking away of money _ especially for emergencies.
Despite the industry's financial woes, banks still are the safest place to park savings, especially since the government bumped each bank's FDIC deposit insurance from $100,000 to $250,000 per account holder.
As far as investments go, cash is still a priority for senior investors and those nearing retirement, two groups of people who generally need to protect their principal.
Many people already have fled to the safest havens they could find, diverting billions of dollars to U.S. Treasury securities, savings deposits and other conservative cash investments.
RATES ON CDS TOO LOW
The appeal of secure money has been undeniable during tough times, even for investors many years from retirement. But those investments are not necessarily safe, either _ even if you tie up your money for a long time to get the higher available rates of return.
The problem is that average rates on a certificate of deposit recently fell to less than 3 percent for five years and 2.5 percent for one year, according to Bankrate.com. That means inflation can easily eat away the returns. Savings and T-bill rates have dipped even lower, to less than 1 percent.
Some have found a viable option in Treasury Inflation-Protected Securities (TIPS), a government-backed bond whose principal _ and subsequent interest payout _ adjusts upward based on the inflation rate, so that your money at least keeps up with the cost of living.
SOME RISKS ARE REQUIRED
Though that's good for your peace of mind, TIPS won't yield the healthy returns you may need to build a robust nest egg. That will require taking at least some risks.
"If your time frame is between five and 10 years before retirement, these are safe investments," said Greg McBride, senior financial analyst for Bankrate.com. "But beyond that, you run the risk of investing too conservatively. I mean, for longer than 10 years, keeping your money in cash doesn't compensate you for the risk of inflation.
