I host financial seminars as a convenient introduction to my company’s services. The seminars are very different from those sponsored by other advisers. I don’t bore attendees with a sales presentation or countless PowerPoint® slides. Instead, I ask the audience for their questions and areas of interest; those questions then become the entire presentation. It’s a fun, interesting, and spontaneous format, and it has made me aware of the financial issues that are top-of-mind for investors. For example, I’m frequently asked, “How can I earn a decent rate of return without putting my money at risk?”

 

Traveling Partners: First, please note that risk and return are inseparable traveling partners. More return potential almost always means more risk of loss. Second, there is no such thing as the “perfect investment.” No investment protects your principal, offers a high rate of return, remains completely liquid, provides lifetime income and minimizes taxes . . . any presentation that promises all of these highly attractive features is a misleading sales pitch or a flat out scam.

 

No Risk: If the main goal is to protect principal from loss, then the list of investment choices gets very short. Ready? Here they are: cash, checking account, savings account, money market account, Certificate of Deposit, fixed interest rate annuity, or fixed index annuity. That’s it. These products are each designed with safety of principal as the first priority. Now, it is important to note that the financial security offered by these products is based on overall financial system stability and the health of banks and/or insurance companies. However, should there be an institutional failure, both types of financial institutions have back-up guarantees at either the state or federal level. With all that said, these “safe” choices will rarely generate big returns.  

 

Risk: If loss of some or all of the original investment is acceptable (in order to earn more over time), then the list of investment choices gets a lot longer. Here are some (not all) of the choices available: Treasuries; commercial paper; bond mutual funds; municipal, corporate or foreign bonds; mortgage-backed securities; publicly-traded preferred stock; high-yield bonds; exchange-traded funds; no-load mutual funds; variable annuities; unit investment trusts; real estate investment trusts; private mortgages/receivables; rental and commercial real estate; individual publicly-traded stocks; precious metals; commodities; currency; penny stocks; options; futures contracts; . . . and roulette!

 

Mix Them: There is no magic formula, but I often find that an appropriate strategy is to carefully combine these “risk” and “not-at-risk” ingredients. It’s a highly individualized process that requires adviser latitude, experience and expertise, but it’s definitely worth the time and effort. What do you think?

 

 

 

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