Risk-free Methods To Reinvest Ones Savings

It is a mistake to invest all your money in the stockmarket for two reasons

. The first is that the stock market is one of the most volatile investments. Although gains may be as high as 30% per year, the average return is 11% with the caveat that about half the time the stock market loses value in any given year. In other words, the variances or fluctuations are very large. The second is that modern portfolio theory tells us that we should diversify our investments. Putting our money into vehicles other than stocks is a wise move.

A money market account is a great alternative. They are offered at banks and other financial institutions. The basis for the money market account is the constant churn businesses go through borrowing money for their daily activities. For example, to make payroll a company needs to borrow money until it recovers all its income from customers. This borrowing means that there's a constant demand for short term loans. When you store your money in a money market account, you are participating in this activity. Money market accounts have low risk profiles and are FDIC insured.

If you have the patience to participate in a T-Bill auction, consider putting your money into a T-Bill. The auction is the way to decide the terms, that is, the yield of your treasury bill and the maturity date. A common length of time is 13 or 26 weeks. The U.S. government has never defaulted on its debt, hence the basis for so many people coonsidering this to be an essentially risk free way to save money. T Bills may be purchased through the Treasury website.

Banks continue to offer Certificates of Deposit or CD accounts that pay higher interest rates than regular savings or checkings accounts. Each certificate comes with a contractual term during which the depositor may not withdraw money without incurring a penalty. Term limits typically range from months to years. The long period of very low interest rates has made bank CDs very unattractive, with even very long term contracts giving very low rates. However, they are still safe, as long as the bank itself is in good financial health.

Put money into your 401k plan which offers tax-deduction benefits at the time of deposit. Taxes are calculated normally when they are withdrawn but if you time it after your retirement when income is low you will avoid paying taxes during your most productive and highest earning years. The 401K affords flexibility as the owner of the account chooses what to invest in. This is often mutual funds but other types of financial plans are possible.

Buy mutual funds that are spread across the total stock market, or non-stock sectors such as commodities, municipal bonds, or anything that is sector-specific. Mutual funds allow rapid diversification of your savings in many segments of the market. Why stop at US-based stocks? Buy international stock mutual funds to take advantage of rapid growth in emerging economies with the risk spread across many countries and even continents. Mutual funds are also a great way to keep your 401K or IRA chugging along.

Like T-Bills, savings bonds are a way for people to save and invest in the government. Two types of savings bonds are available: the series EE and the series I. The EE is set at a fixed interest rate. Even if it is very low, you are guaranteed a doubling of the principal value of the bond in 20 years. The series I tracks inflation so will have a varying interest rate that goes up during times of high inflation and down during low inflation. There is also a small fixed component which makes the Series I fairly competitive with the EE. There is no guarantee of a doubling in 20 years though.

by: Mauricio Estwick

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