Sometimes the best investment is safe investments, and 2015 could be one of those times. First, let’s take a look at your investment options. Then we’ll focus on finding the best safe investments for 2015 and beyond.
Since the beginning of 2009, stocks and stock funds have been the best investment options. The past six years have often been referred to as “the stock market no one loves”, yet with 2015 approaching, the stock market continued to hit new all-time highs. Stocks aren’t cheap, but there are two sectors that could be interesting: oil stocks and natural resource funds (if oil prices drop further); and gold stocks and funds (if gold becomes cheaper). Neither are safe investments, but there could be a chance if oil or gold really does get cheap.
Right now, any bad economic or political news could trigger a reversal in stocks in 2015 or 2016. Risk vs. The potential rewards suggest that stocks and diversified stock funds are no longer the best investment options. Now, let’s look at the other side of the coin: bonds and bond funds. Historically, when the stock market crashes, investors flock to bonds, causing bond prices to rise. Bonds and bond funds are viewed by many investors as their best safe investment options.
The problem here is that bond and bond fund prices are near record highs as interest rates remain historically ridiculously low. The problem: When rates go up significantly, bonds and bond funds go down in price and investors LOSE money. Higher interest rates make existing bond issues and portfolios (such as bond funds) less attractive. Looking to 2015 and beyond, bonds and bond funds are unlikely to be your best investment options or even your best safe investments when rates threaten to rise.
In fact, they were never really safe. They just seemed safe because interest rates have basically been on a downward trend since 1981, driving up bond prices and giving investors good returns. Now the question is: where do you find the best safe (interest paying) investments when you are lucky if you can get 1% in the bank and even less in the money market?
The best safe investments may be staring you right in the face. If you have a retirement plan where you work (like a 401k or 401a), one of your options might be a stable or “guaranteed” fund. You may be able to block 4% or more for a specific period of time. If you have an older “universal life” insurance contract, you may be able to add money to it at a “guaranteed” minimum interest rate of 3%, 4% or more. The same could apply if you have a previous retirement annuity contract. Yields like this may not excite you, but compared to stocks and bonds, they could be the best investment options on the horizon.
If interest rates rise significantly across the board (long-term and short-term rates) and you need quick access to your cash, a good money market mutual fund could be one of the best safe investments. As rates go up, your dividends are automatically adjusted up as well. They are not “insured” by the federal government, but many hold short-term government securities (Treasury bills) that are considered one of the world’s truly safe investments.
In normal times, the question of finding the best investment options centers on stocks vs. jumps. I am not alone when I fear that these are not normal times. We (and much of the rest of the world) have lowered interest rates to stimulate our economy and support our markets. There is not much room to lower rates further in the future. That is why I suggest that the best safe investments are possibly the best investment options available for 2015 and beyond. When the dust clears, the debate over whether stocks or bonds are the best investment will likely return to center stage.