When No Investment Seems Safe
People worried about the future of the economy are often reluctant to invest in ventures that seem risky. In good times, the volatility of stocks can benefit investors by paying high returns. However, tough times tend to be hard on riskier investments. Insured investments and government-issued ones can be options to weather economic storms.
Using Bank Accounts Instead of Investing
Many investors turn to bank accounts when the economy gets choppy. While the returns on bank accounts are usually low, they offer the benefit of insurance. The Federal Deposit Insurance Company insures up to $250,000 per depositor, per insured bank including principal and accrued interest. This means that investors that put their deposit up to $250,000 in a bank can be sure that they’ll get their money back as long as the U.S. government stays solvent. Some investors choose to put their money in special accounts called certificates of deposit. These accounts pay a slightly higher interest rate, but you have to let the money sit untouched for a set period of time.
Reducing Debt is a Method of Investing
Another investment choice is to reduce debt. While it’s a very different type of investment from putting money in the bank or in stocks, it has the same effect. Owing less money is similar to having more money, since the effect on your net worth is the same. In addition, reducing debt can help care for your credit health, as less debt often means a higher credit score and better loan terms. It can also save money over time, since paying off debt reduces the amount of money you pay in interest. Some investors like the security of having lower monthly bills, especially if times are uncertain.
Are Government Bonds a Good Investment?
U.S. Treasury bonds are usually viewed as safe investments. However, different bonds have different levels of safety. Short-term notes and bills offer low rates of return but, because they don’t last very long, typically don’t fluctuate much in price. Longer-term bonds generally offer higher rates of return but run the risk of having their value decline if interest rates go up. Investors don’t lose money if they hold the bond until it matures, but if they need to sell it, they might have to take a discount. The U.S. Treasury also issues special bonds that protect investors against inflation. Series I savings bonds and Treasury Inflation-Protected Securities are both bonds that vary their returns to keep pace with inflation. Investors who are concerned about a return to high inflation sometimes choose these bonds for protection against it.
Are Precious Metals a Good Investment?
When other investments seem too risky, some investors buy precious metals. The idea behind this is that while the value of money may shift over time, an ounce of gold will always be an ounce of gold. However, because investors tend to pile into gold when the economy gets shaky, the price can sometimes go up too far, too fast. This means that it can also go down quickly when the economy recovers and investors decide to sell their gold.
Regardless of your preferred method of investing, you should determine for yourself if it would be better to pay off your debt or invest your cash. Additionally, be sure you have enough saved for emergencies so you don’t have to cash in early on your investments or risk missing payments on your debt.
About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.