Saturday, October 27, 2007

Secrets of Playing it Very Safe with Investing

Even Super safe investments can be risky if you do not know the rules:

Know your Goals: Decide on your time frame. If you are saving for something in the short-term safer investments are better and if you are saving for retirement which has a longer time horizon it would be beneficial to assume more risk.
Consider Inflation: The more conservative you are the greater the inflation risk you assume.
Do It Yourself: Your money won't grow very much with super safe investments so giving away what little return you are making to a fund manager or other professional doesn't make much sense.
Beware of Gimmicks
Guaranteed Investment Certificates: when looking to get a GIC make sure that interest rates will be going up and shop around for the best rates.
Money Market Mutual Funds: These typically pay more than a short-term GIC. While GICs have a fixed rate, Money Market funds typically earn more as interest rates rise. The shorter the maturity the quicker the return will rise.
Short-term Treasury Issues:(Issued for one year or less) These are guaranteed by the government of Canada. If interest rates climb, treasury bills lose value. The longer the time to maturity, the greater likelihood of the price falling.
Short-term bond funds: You can buy short-term bond funds yourself or put your money in a mutual fund that buys them for you. With this option you get diversification and professional management. The higher the interest rates go the more you'll earn on your fund , generally.