There was a time when the term ultra-conservative was considered less than sexy, boring, and even foolish. The thought of accepting a fixed rate of return in a guaranteed savings vehicle was better left for those with no risk tolerance or those nearing retirement.
That was then. Now the idea of a secure, fixed deposit is readily accepted as prudent and desirable. Amazing what a recession can do to change people’s minds.
Fixed deposits have come into their own, they are both highly conservative and prudent. But they need to be considered in context with the global economy and market trends. Fixed deposits won’t make someone into a millionaire anytime soon, but the stock market still may.
Indeed, this is the type of economic environment that millionaires are made. The trick with fixed deposits and market investments is the same as it has always been, the economic downturn doesn’t change the basics of investing, the key is diversification.
Fixed deposits are a prudent financial move with a part of your investments. This has always been the case, the fluctuations in the economy have not changed this. Part of any investor’s portfolio belongs in fixed investments that will add stability to their financial picture.
The question is simply how much? That depends upon the investor’s time horizon. Market investing is about time in the market, not timing the market. The longer one has to remain in the securities that they are purchasing the larger the percentage of their portfolio belongs there. There is still an important place for fixed deposits no matter how long someone intends to remain in the market.
Diversification provides the key to sound investing in any market environment. Securities and fixed deposits have a place in every investment portfolio. When looking at fixed deposits consider bank CD’s or fixed annuities. For the securities piece now more than ever remember to be diversified there too. Mutual funds and exchange traded funds (ETF’s) provide excellent, immediate diversification.
A bank CD is best used for short to intermediate needs. They will provide you a specific rate of return for a specific period of time. They are also completely FDIC insured.
A fixed annuity is similar, but the term is usually at least five years. They also provide a fixed rate or a fixed amount of time and their rate is usually better than bank CD’s. They are not FDIC insured, but backed 100% by the insurance company that issues them, making them very safe.
Fixed annuities also come with a few benefits that CD’s don’t: tax deferred growth, greater liquidity, and estate planning benefits. Before choosing either other the other consider what you will likely use the money for and how long you can afford to tie the funds up. There is nothing wrong with doing both a bank CD and a fixed annuity.
Many fixed deposits are ultra-conservative. Many are also highly prudent. They belong as part of your investment portfolio.