I'm retired. I don't trust the stock market at my age. I probably won't live long enough to recover losses from a down-turn. And the concept of living in the hope of a recovery is less appealing that living with low-return secure savings.

So I have most of the money that I've saved in CDs and a money market fund at Fidelity. It feels secure but the returns are negligible. I thought I'd use this forum to reach out to see if anyone knows of a secure investment that always returns more than 1 or 2%. Thanks for any ideas.

  • Are you worried about running out of money at the 1-2% return rate you're getting presently? – Hart CO Dec 21 '19 at 17:38
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    No. I live within my budget and don't spend savings. – Carl Ernest Dec 21 '19 at 18:07
  • In your deleted answer you mentioned staying with low-risk savings products. You need to shop, shop, shop constantly. Institutions are all over the map right now on rates and they're changing pretty fluidly as banks struggle to compete over deposits. You may be able to eek out an extra percent or two if you stay on top of this game. – dwizum Dec 23 '19 at 14:16
  • I didn't delete my answer. It was a "thank you" for the people that offered suggestions, and a summary that I would probably just stay with the CD savings. It looks like my answer was deleted by, JTP - Apologise to Monica♦. I don't see an explanation for why it was deleted. – Carl Ernest Jan 7 at 21:14
  • I clicked to un-delete my answer and saw a pop-up, "A moderator has deleted this post and it cannot be undeleted." – Carl Ernest Jan 7 at 21:16

CDs and money market funds are secure investments that preserve principal. If you want a better yield, you have to take on some risk.

You stated that you don't trust the stock market at your age and probably won't live long enough to recover losses from a down-turn. If that's truly the case, you can stop reading this answer now.

Investment grade preferred stocks currently offer about a 5+ pct yield and have much lower risk than common stocks. With some periodic swapping, you can bump the yield up several percentage points. Even more when there's an interest rate cycle which isn't now.

There are three risks with Pfd stocks. First, there’s the underlying soundness of the company. Companies like Citibank, Capital One, Public Storage, Goldman Sachs, JP Morgan Chase, Wells Fargo and various utilities like Entergy and Nextera are so not likely to go bankrupt. But they can get into trouble (see the 2008 GFC).

Of more significance is the interest rate risk, unless they are floating rate Pfds. Like bonds, Pfd share price drops when rates rise. That’s not a problem if you’re going to hold them long term for the income but will be an issue if you are going to need the principal for other expenses, at the wrong point in the rate cycle.

Lastly, most Pfds are callable in 5 years. If called and rates are lower, you won't be able to replace your higher income positions and your yield will drop.

As a concrete example of swapping, I bought a Pfd on Monday that pays a quarterly dividend of 38 cents on 1/29 (6.03% yield). I sold it 4 days later for a gain of 35 cents and then bought another Pfd with the proceeds. Why wait up to 3 months for a similar amount (6 weeks in this case) as well as take the risk that share price could drop, taking away my 35 cent gain? A year ago, I bumped a sit and do nothing yield of 6% to just over 12%. Pretty decent for the fixed income portion of my portfolio.

The disadvantage of swapping is that you give up Qualified Dividend Income status (QDI) which is a lower tax rate. I have no problem with that because the end result is still far better at the higher tax rate.

If this sounds appealing, there's one fly in the ointment. With the recent drop in interest rates, too many Pfds have risen above par and because they are now callable (5 years has passed since their issue date), there's a potential capital loss if called. Because of this, pickings are slim out there. Don't buy Pfd stocks that are much above par (issue price) and are callable in the near future.

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I thought I'd use this forum to reach out to see if anyone knows of a secure investment that always returns more than 1 or 2%.

You most probably won't have such an investment. Some people have belief in real estate. Unfortunately, most real estate investments are not well diversified. A single serious water damage + mold problem and you see the value of your real estate going to zero.

The keyword here is always. You won't have an investment that always returns more than 1 or 2%. Any return above this is coming with an associated risk.

Where I live, forests are prevalent. A joint forest might be such an investment that is almost always guaranteed to return more than 1% or 2%: you can expect 2.5% real return after taxes. If the inflation is 2%, that's 4.5% nominal return after taxes. But, forest investments are always long-term investments, with the life cycle of forest being 100 years where I live.

The idea of joint forest is that instead of owning 25 hectares of forest, you own 1% share of a 2500 hectare joint forest, for example. Then, if part of the forest is burned in a wildfire or affected by wild animals, heavy wind or heavy snow, most likely it affects only part of the joint forest. And the 2500 hectares is of various maturities, so you don't have to wait for the next 50 years to be able to chop down trees.

The problem of forest investments is that their liquidity is extremely limited. So, if your time horizon is 10 years, you have to start converting the forest investments into money, which you might not be able to do at low enough cost.

The same is true with real estate, even more so. If you invest into an individual apartment, you can't sell 20% of it when you need the money.

If you are comfortable with poor diversification and don't yet own a home, you could of course consider buying a home and start living there instead of renting one. But even that has problems: you cannot easily convert 20% of your home into cash should you happen to run into a need of cash.

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I would be extremely skeptical of anyone pitching a no-risk return in excess of current CD/Money Market rates.

Many people in retirement are okay with some risk, and will go with something like 80% bonds 20% stocks for their investment accounts while also having other holdings like a paid off house and cash in savings/CD's/Money Market accounts. The decision really comes down to your situation, preferences, and risk tolerances. If you have enough to comfortably live with 1-2% growth then maybe there's no good reason to put some of your money at greater risk. Otherwise, you could shift some of your money into bonds and likely bump up your returns a little bit without introducing tremendous risk.

Paying a financial planner to review your situation and help you plan could be worthwhile, might open your eyes to any blind spots in your planning or just reassure you that you are in a good spot. If going that route I'd suggest a certified financial planner that charges for retirement planning rather than one that makes their money off commissions from your investments.

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There are active-managed high-yield-bond ETF's paying 2.3% to 2.7% at durations of four to six months. The point is that it's not likely for a bond to get into very much trouble when its only six months from redemption. But the ETF share price will float around a little.

And short-term high-yield-bond ETF's can be found at durations of about twenty months as paying about 5.35%. This situation is more risk because high-yield-bonds can fall with the stock market but probably not fall as much as the stock market. And these ETF's, as not being active-managed, hold the more liquid high-yield-bonds for less risk.

Most investors in high-quality-corporate-bond funds go with longer durations which is includes the risk of interest-rate movements.

Another strategy is to invest in government bonds but invest in government bonds that are leveraged. So this situation can be found in a TIP closed-end-fund. Or, for instance, there was a leveraged Treasury-bond closed-end-fund that became an open-end-mutual-fund and can be found as no-load through some brokers. Now government bonds may seem high in price but the leveraged funds can also hedge so it's their responsibility to avoid downturns.

Similar to leveraged government bond funds, leveraged mortgage closed-end-funds can be found but these closed-end-funds are much less leverage than mortgage-REIT companies.

Oh, closed-end-funds don't trade at net-asset-value but depend very much on investor support. Open-end-mutual-funds do trade at net-asset-value. ETF's don't trade at net-asset-value but usually stay close to net-asset-value. (In fact a high-yield-bond wipeout of ETF's not staying near net-asset-value, because of their ill-liquid bonds, hasn't happened. The ETF's hold the more-liquid high-yield-bonds.)

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