Are you investing to not lose money rather than to earn it -- staying in the slow lane, sticking with certificates of deposit, inching your way to modest returns?
"Being too conservative, or driving too slowly, can be as risky as driving too fast," says Wade Slome, president and founder of Sidoxia Capital Management LLC in Newport Beach, California.
What if CDs drive your investment income? There might be better investment choices than CDs, especially these days with CD yields stuck in low gear. Your nest egg could run out of gas before your retirement ends.
Diversifying your investments with stocks, bonds, real estate, commodities, alternative vehicles and emerging markets could grow your money faster, and you won't have to ditch the safety of CDs.
CDs are kind of in the same range as AA corporates or junk munis," says Joel Larsen, principal at Navion Financial Advisors in Davis, California. "There is very little risk, and if you're going to take very little risk, you're going to get very little return."
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Total asset allocation
No one is suggesting that you immediately yank your money out of CDs and start snapping up hedge funds.
"What you really need to do is back up completely and look at the whole asset allocation," says Jennifer Lane, CFP with Compass Planning Associates in Boston.
Keeping a portion of your assets in CDs as part of an emergency fund might be a wise choice, Lane says. Once you have that emergency cash stash in place, you can think about easing into the stock market with what Lane calls "plain vanilla" index funds. A good mix might be "a large-cap index like an S&P 500, some mid-cap, some small-cap and a little bit of international," she says.
Larsen says even the most conservative investors among his clients have no more than about half of their money in fixed-income investments like CDs. For that group, he recommends a mix that balances fixed-income investments with dividend-producing instruments like stocks and real estate investment trusts, or REITs.
Lane cautions against jumping into indexed annuities and other complex investments in the chase for higher rates. Before you leap, ask an independent adviser plenty of questions so that you understand what you're getting into.
"CDs are very straightforward and simple," Lane says. "If you are going to move away from them, educating yourself about what you're investing in is very important."