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

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.


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