How much can you risk?

These days are some of the toughest for conservative investors. Those folks who would rather know that their savings are principal protected are faced with less and less options on where to hold their money and get a rate of return they can rely on. For CD shoppers, the interest rates continue to hold in the 1-2% range for people who only want or need to keep their money tied up for less than 2 years or so. For people willing to go a little longer to get a better rate, they can try structured notes, bonds, or longer maturity CD's. I had a client yesterday who told me he was going to put some of his money into a 10 year CD paying 3.75%. I asked him what he would do if the interest rates came up before the end of his 10 year period and he said it would only be a 6 month interest rate penalty to pull out his money early. Times change. This is the same client who told me just last year that he didn't want to tie his money up too long because he was certain rates would start going back up soon. I told him he should consider a bond or bond fund which could get him 4-6% interest with a shorter time frame, but he said he didn't want to take the risk on having something that was not FDIC insured. So he was willing to lock in his money for a fixed rate of 3.75% for 10 years, just to have the peace of mind that his money was insured. Now to his credit, he has a sizable portfolio, and he doesn't need the income off this CD, so he can afford to take a lower rate for now. This is not the case for most people. People who need to live off the interest and dividend income that their investments produce are having to put more of their money at risk for loss, in order to get the higher return they need. For those who need or want an investment paying 4-6%, they need to look at bonds or bond funds, or even dividend paying stocks. For those worried about bond prices going down soon because of rising interest rates, this is a risk that probably won't present itself for another 2 to 3 years down the road. But this type of risk can be managed by utilizing shorter durations or more diversified portfolio construction. Dividend paying stocks will have some price fluctuation, but if you pick a blue chip company with a long track record of paying dividends, you'll be fine. The key is to ask yourself how much you want to make and how much risk are you willing to take to get it. Will your financial goals and objectives be met with a 1-3% return, or a 4-6% return? Need more than that? Let's talk!