Should your important money be an investment or should it be a deposit? How do you know the difference and how do you decide what is best for you?
What exactly is “Safe Money?” Is it money that needs to be risk free? Is it money that needs to be available? What exactly is the true definition of “Safe Money?” The answer may surprise you…the answer is based on your specific situation and your desired goals. For many people “Safe Money” is money that will be there when it is needed. For others it could be a calculated risk on some asset allocation plan. Once again…it all depends.
For the truest definition of “Safe Money” let’s look at it in its purest forms…safe…..safe and free from risk.
If your money is to be totally risk free you only have three options. These options are based on the underlying guarantees that come with these products. If the very worst scenario happened…would your money still be safe? Your options are:
- US Treasuries guaranteed by the full faith and credit of the United States.
- Bank and Credit Union Accounts guaranteed by the Federal Deposit Insurance Corporation (FDIC) and the NCUA with underlying guarantees by the full faith and credit of the United States.
- Fixed Annuities guaranteed by the assets of the insurance company and the underlying guarantee of each state’s Guarantee Fund.
So why don’t all of us keep the majority of our money in one of these three options? One reason could be the yield or the interest earned. The safer the deposit the lower the yield. If you demand total and complete security of guarantee then your yield may not be enough to sustain your goals.
If it is time in your life for Safe Money, possibly a conservative approach makes sense.