Safety and Income: Conclusion
  1. Safety and Income: Introduction
  2. Safety and Income: Why Focus on Safety and Income?
  3. Safety and Income: Caveats Regarding Safety and Income
  4. Safety and Income: Stocks and Dividends
  5. Safety and Income: Bonds
  6. Safety and Income: Banks
  7. Safety and Income: Guaranteed-Income Products
  8. Safety and Income: Real Assets - Gold, Real Estate and Collectibles
  9. Safety and Income: Safety, Income and the Optimal Portfolio
  10. Safety and Income: Conclusion

Safety and Income: Conclusion

By Brian Perry

This tutorial has examined investment alternatives that might appeal to individuals interested in safety of principal and current income. The tutorial began with a discussion of the importance of income as a component of overall portfolio returns as well as an examination of why safety is an important consideration of all investment portfolios.

There are important caveats to consider when focusing on safety and income - in particular, the impact of inflation and taxes on investment performance. Focus on safety and income is not appropriate for investors with very long-term time horizons, but all investors should attempt to achieve at least some principal growth in their portfolio.

We also looked at the various asset classes that might be appropriate for investors seeking safety and income. Examining stocks is an important part of safety and income, as you can find the appropriate stock for your portfolio. These can be preferred stocks, as well as the common stocks of large, stable companies that have a long track record of paying dividends.

Bonds are possibly the best overall alternative for investors seeking safety and income. Investors were cautioned to avoid riskier bonds, such as high-yield or emerging market securities, and to concentrate the maturities of their bonds in the 10-year and under sector.

For safety and income investors, investment alternatives can also be found at the bank. Most of these options are designed for short-term, very safe investing and may not provide reasonable returns for investors with a long-term time horizon. Nevertheless, certificates of deposit and money market funds can provide a valuable tool for investors looking to place excess cash for a temporary period or saving for a rainy day. We also looked at guaranteed-income products. These products provide consistent income and peace of mind while removing the risk of outliving one's assets. However, individuals should carefully evaluate whether these products are superior to other investment alternatives and should be wary of high costs and potentially predatory lending practices.

The tutorial also touched on investing in real assets. Real assets include gold, real estate and collectibles. These real assets pose special challenges to investors, and often do not provide current income. However, they can serve as an excellent inflation hedge and store of value and may therefore be appropriate for well-diversified investors seeking safety.

We concluded this tutorial with an analysis of the role of safety and income within a larger portfolio. Depending on a person's risk tolerance or stage of life, a portfolio focused upon safety and income may not be appropriate. Growth is also important, and a well diversified approach to meeting once financial goals usually includes a balanced emphasis upon growth, safety, and income. The exact weighting of these financial goals will depend on an individual's unique objectives, but under almost any circumstances at least some emphasis should be placed upon all three goals.


  1. Safety and Income: Introduction
  2. Safety and Income: Why Focus on Safety and Income?
  3. Safety and Income: Caveats Regarding Safety and Income
  4. Safety and Income: Stocks and Dividends
  5. Safety and Income: Bonds
  6. Safety and Income: Banks
  7. Safety and Income: Guaranteed-Income Products
  8. Safety and Income: Real Assets - Gold, Real Estate and Collectibles
  9. Safety and Income: Safety, Income and the Optimal Portfolio
  10. Safety and Income: Conclusion


RELATED TERMS
  1. Tight Monetary Policy

    A course of action undertaken by the Federal Reserve to constrict ...
  2. Laissez Faire

    An economic theory from the 18th century that is strongly opposed ...
  3. Interest

    The charge for the privilege of borrowing money, typically expressed ...
  4. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  5. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  6. Climate Finance

    Climate finance is a finance channel by which developed economies ...
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  3. What is the 'Rule of 72'?

    The 'Rule of 72' is a simplified way to determine how long an investment will take to double, given a fixed annual rate of ... Read Full Answer >>
  4. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  5. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
  6. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center