Is It Safe?

By Bob Moeller
WEAC Member Benefits

November 2008

By Bob Moeller

Lately, when discussing investments with members the simple question comes up: “Is it safe?” There are very few truly safe investments, and this is a review of them and the easiest way to buy them.

Federal Government securities are safe. Unfortunately the Federal Reserve Board has deliberately been lowering interest rates, so your earnings are meager. Even 30-year Treasury Bonds today yield only about 4.25%, which I think is not enough for a long-term commitment. One possible exception, at least short term, would be I (Inflation) bonds. They can be purchased at any bank, credit union, etc. The yield for the six-month period after you buy them now is 5.64% annualized. Each six months, the yield will be adjusted to reflect inflation. Make sure you understand the reasonable rules. This is the only government debt I would investigate at this time.

Most CDs are FDIC insured. They are safe. I find current CD rates in the area of 5% for five years, 4%+ for two, three, or four years. The easiest and best way to regularly purchase CDs is to set up a discount brokerage account which offers you the opportunity to research rates nationwide and make a purchase though the account itself without opening new accounts at banks each time. You select the bank and the amount via the Internet through your broker. You should pay no brokerage commission; the bank reimburses the broker. This also is an excellent and cheap way to acclimate yourself to a discount brokerage account. (Fidelity Brokerage is a good source.)

Other investments regarded as safe are: the AAA- rated corporate notes. I recently purchased a General Electric four-year note yielding over 6% per year. There are very few AAA companies, and even GE has had stock price reductions in the bear market. But we are not talking about stock here; we are talking about a short-term debt from a AAA company. Again, these would be purchased through your discount brokerage account. If a new issue (research new issues at www.internotes.com), there will be
no commissions. With this type of note, you receive your interest periodically, credited to your account. The interest does not accumulate. Stick with short-term AAA-rated notes until you become familiar with these investments.

Finally, bank savings and money funds are safe, but they are more like parking places for money.

For most members, that is about it for truly “safe” investments. Questions? Contact me at Moellerb@WEAC.org.

Posted November 21, 2008