5 Investing Alternatives for Conservative Investors
Investors in or near retirement might consider investing alternatives such as cash, high-yield checking or savings accounts, stable value funds and more.
The year 2022 was a bit of a doozy for both stock and bond investors, with both stocks and bonds experiencing double-digit losses for the year, something that is incredibly rare. While maintaining a diversified portfolio and staying the course is critical for a long-term investor’s success, the following five investing alternatives could help those who are approaching retirement or are in retirement and looking to safeguard their assets in the current market environment:
1. Cash
Cash is an often-overlooked asset in a portfolio. Financial advisers commonly suggest low allocations to cash because it tends to be outperformed by bonds over the long term. Given the unique shape of the yield curve today, however, which is relatively flat and slightly inverted (which means shorter-maturity bonds are actually paying more than longer-maturity bonds), allocating to cash-like investments such as money market funds could be a smart move.
A benefit to allocating to cash is that it is relatively unaffected by changes in interest rates. So, if interest rates go up (again), it wouldn’t negatively impact performance.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. High-Yield Checking or Savings Accounts
Interest rates on checking and savings accounts offered by more traditional banks today are often well below the yields available from some banks, especially online banks. For example, I have two checking accounts: The one at a more traditional brick-and-mortar bank has a yield that is effectively zero, while the other, which is an online bank, pays 2.5%. They are offering relatively identical services, yet notably different yields.
3. Stable Value Funds
Stable value funds are a specific type of investment available only in defined-contribution plans such as 401(k)s where the portfolio is protected against a decline in value. It is important to note, though, that stable value funds aren’t available in IRAs, so if you plan on rolling money out of your 401(k) plan, you will no longer have access to the stable value fund.
4. Multiyear Guaranteed Annuities (MYGAs)
MYGAs, often called fixed-rate annuities, provide a stated fixed return over a given period and currently offer relatively competitive yields. These products are structurally similar to CDs, but are offered by insurance companies.
I started writing about MYGAs back in 2020 and think they are especially attractive now. One notable benefit of these products is that the interest grows tax-deferred, unlike a bond, where gains are taxed annually at the investor’s marginal tax rate.
5. Delay Claiming Social Security Benefits
While obviously not an investment, Social Security retirement benefits are the only form of guaranteed income available today that is explicitly linked to inflation. Social Security benefits are also tax-advantaged, and there are special spousal benefits that may increase the value.
While I think stocks and bonds definitely belong in investor portfolios long term, recent changes in the market environment, especially the rise in bond yields, have created some opportunities that either weren’t available or just weren’t that attractive at the beginning of the 2022.
In my opinion, conservative investors, especially retirees, who haven’t considered some (or all) of the strategies above should at least look into them.
David Blanchett, PhD, CFA, CFP®, is Managing Director and Head of Retirement Research for PGIM DC Solutions. PGIM is the global investment management business of Prudential Financial, Inc. In this role he develops research and innovative solutions to help improve retirement outcomes for investors with a focus on defined contribution plans. Prior to joining PGIM he was the Head of Retirement Research for Morningstar Investment Management. He is currently an Adjunct Professor of Wealth Management at The American College of Financial Services and Research Fellow for the Alliance for Lifetime Income. David has published over 100 papers in a variety of industry and academic journals that have received awards from the CFP Board, the Financial Analysts Journal, the Journal of Financial Planning, and the International Centre for Pension Management. In 2014 InvestmentNews included him in their inaugural 40 under 40 list as a “visionary” for the financial planning industry, and in 2021 ThinkAdvisor included him in the IA25+. When David isn’t working, he’s probably out for a jog, playing with his four kids, or rooting for the Kentucky Wildcats.
-
Stock Market Today: Nasdaq Soars on Strength in Magnificent 7 Stocks
The main indexes started the week strong after several mega-cap stocks rallied.
By Karee Venema Published
-
Target Limits Self-Checkout To 10 Items
Target launches new self-checkout lanes on heels of a new paid membership plan and expanded brand offerings.
By Jamie Feldman Published
-
Should You Invest in CDs? What to Consider
Before putting your money in a certificate of deposit (CD), you should know why banks issue them, how they are used and how they are priced.
By Brian Skrobonja, Chartered Financial Consultant (ChFC®) Published
-
How Retirees Can Minimize the Net Investment Income Tax
One strategy is to consider your filing status, which can affect the net investment income tax (NIIT) that successful retirees pay on certain investment income.
By Derek A. Miser, Investment Adviser Published
-
Can Money Buy You Happiness? Yes, It Can. However…
Having a higher income doesn't mean you also have enough of the other things that make you feel truly happy and wealthy (relationships, hobbies, time).
By Richard P. Himmer, PhD Published
-
Roth Conversions: Convert Everything at Once or as You Go?
Two hypothetical examples of Roth conversions made at different times (all at once vs as you age) show a stark difference in what could be left for your beneficiaries.
By Mike Decker, NSSA® Published
-
Four Unseen Icebergs That Could Sink Your Retirement Plan
Don’t be like the captain of the ‘Titanic’ and ignore warnings to be prepared for risks that lie ahead when planning for your retirement.
By Daniel Sullivan Published
-
Want to Retire Abroad? Five Things to Know About Your Money
To prevent your retirement dream from becoming a nightmare, you should carefully consider the logistical and financial hurdles of retiring outside the U.S.
By Pam Krueger Published
-
For Longevity Protection, Consider a QLAC
A qualifying longevity annuity contract, or QLAC, can help you define a better retirement for yourself by providing guaranteed lifetime income.
By Jerry Golden, Investment Adviser Representative Published
-
Digital Estate Planning Guide: Get Your Digital Assets in Order
A digital estate plan lets your loved ones know what should happen to your email and social media accounts, photos and more after you’re gone.
By Justin Stivers, Esq. Published