In a recent GOBankingRates survey, most of those surveyed said their money was safest either at home (30%) or in a savings account (32%). Though there is a level of safety with those methods, what people might not know is that their money can be just as safe in investments.
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We reached out to finance and business experts to discuss how safe your investments really are, and how it can actually be more beneficial to you to store your money outside of your home. Here are the signs you’re not taking full advantage of your money, and how you can change your habits.
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You Don’t Have Any Money in CDs
In the GOBankingRates survey, only 7% of respondents said their money was safest in CDs (certificates of deposit). For those who think their money is safest in savings accounts, this method is for you. A CD is a type of savings account where you agree to keep a predetermined amount of money for a set amount of time. At the end of that time period, you can cash out your original amount of money invested plus the interest it accrued. According to the FDIC, the average CD pays 0.23% to 1.85% APY, however, some pay much more than that.
Gates Little, president and CEO of altLINE, wanted people to know that investing in CDs is actually a very secure place to keep your cash.
“CDs are insured by the FDIC, making them as secure as cash in the bank.”
If you think your money is safe in a savings account, then there is no reason for you not to invest in a CD. This is especially true since the average savings account interest rate is 0.46% APY, and you could earn over 5% on some of the higher-paying CDs.
Dane Nk, founder of That VideoGame Blog, added that keeping your money in a CD might actually be safer than keeping your cash at home.
“A CD held in a bank is insured by the FDIC up to $250,000, which means even if something happens to the bank, your money is protectеd. That’s a level of security you just don’t get with cash stashed at homе.”
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You Think Stocks AreToo Risky for Your Money
There is no getting around it: Investing in stocks comes with inherent risk. However, they might be safer than you think.
“Although stocks are riskier, they are protected by regulations and broker safeguards,” Little said.
He added that there are a ton of benefits to investing in stocks, too, that you might be overlooking.
“They’re a bit more dynamic. You’re buying a piece of a company, and if that company grows, so does your investment. Plus, there’s the potential for dividends, which is extra money in your pocket. And they help you stay ahead of inflation — an important edge.”
Right now, stocks like Enbridge Inc. pay a 6.8% trailing dividend yield. That’s an opportunity for you to get paid even if the market is down. It’s a great way to supplement your savings.
Melanie Musson, a finance expert with InsuranceProviders.com, said that the trick to making stocks a safer investment is to diversify, diversify, diversify.
“Not all stocks are equal. Some stocks may lose money. Others may perform extremely well. A diversified portfolio allows you to balance your risk. While some stocks lose, others earn, and historically, money in the stock market increases in value, especially over the long term.”
You’re Not Looking Into US Treasury Bills, Bonds and Notes
Only about 5% of respondents thought their investments were safest in U.S. Treasury bills, bonds and notes, according to the GOBankingRates survey. Little said consumers need to change their minds about this and look into these avenues for investing.
“U.S. Treasury bills, bonds and notes are about as safe as it gets,” Little said. “Backed by the U.S. government, they’re the closest thing to a sure bet in the financial world. If safety is your priority, these are your go-tos.”
Alec Kellzi, a CPA at IRS Extension Online, agreed, saying investing in these assets are incredibly safe.
“They are almost default-proof because of this government guarantee, which guarantees that your principal and interest payments will be made when you need them. Treasuries offer a far safer option to protect your savings and generate a consistent income stream through interest when compared to cash kept at home. They are very simple to get when you need your money because of their liquidity.”
Your Keep All of Your Cash at Home
If your money is all at home under your mattress, it doesn’t have a chance to grow.
“Inflation eats away at its value, and it just sits there — no growth, no earning,” Little said. “Your money deserves to work for you, not just gather dust.”
If you’re keeping your money at home because you think it will be safest where you can see it, then you might want to rethink that as well.
“If you’re keeping cash under the mattress, it may seem safe but you have the physical risk of loss and/or damages (fire, water, etc),” said Shanka Jayasinha, the founder of S&J Private Equity.
Jayasinha also agreed with Little, saying that if disaster doesn’t come for your money, inflation will.
“Although liquid, cash will depreciate due to inflation. Overall, the main reason securities are safer is that they have more robust markets and liquidity than almost anything you can keep at home. When markets thrive, liquidity is pushed towards less liquid assets, creating pricing bubbles. When the music stops and liquidity is pulled back through rate hikes for example, those bubbles burst. With the listed assets [above], you have pools of buyers and sellers that are familiar with the asset and can trade it almost immediately, therefore making them safer in the event of a downturn even though it may be at a small loss.”
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This article originally appeared on GOBankingRates.com: 4 Signs You Don’t Understand How Safe Your Investments Are
