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Happier Returns

Americans are saving more. Too bad that popular money market mutual funds, which hold $2.8 trillion in assets, are barely earning any return. Money market funds are essentially short-term cash investments, but unlike money market deposit accounts, they are not FDIC insured. If you want to preserve your principal, consider three alternatives that can offer potentially higher yields.

Regular Savings Account
You can move your money instantly to where it can earn more—and it’s FDIC insured. But interest rates, while better than what you may see in money market funds, are still low.

Certificate of Deposit
Consider bank CDs with maturity dates starting from a year to fifteen months. Bank CDs are FDIC insured and can mature in one month to five years, with a longer maturity
garnering a higher rate of return. But keep the maturity short in case rates rise.

Guaranteed Savings Annuity
Consider a savings, or deferred, annuity if you have money market funds held in retirement accounts. Interest rates on a fixed deferred annuity purchased in a retirement account can be fixed or floating. Annuities are a long-term insurance contract intended for retirement, but if you’ve already committed the money to retirement, a fixed annuity could provide an alternative to a money market fund.

An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.

Investments/Insurance: Not FDIC insured. Not bank issued, guaranteed, or underwritten. May lose value.

Investment and insurance products are not deposits, not insured by FDIC or any government agency, not guaranteed by the Bank. Investments and certain insurance products may lose value. The fixed annuity guarantee against principal loss depends on the claims-paying ability of the insurance company. There are costs associated with annuities, including surrender fees, early withdrawal penalties, and mortality risk expenses. Annuities do not provide any tax-deferral advantage over other types of investments within a qualified plan.

See How You Stack Up
Want a useful way to check the success of your investing strategy? Compare your stock portfolio’s performance against an objective benchmark. Whether it’s information from mutual fund research leaders like Lipper or Morningstar, or a stock index like the S&P 500, comparing your portfolio to an appropriate benchmark can help you see what’s working and what needs help. For bonds, consider the Barclays Capital Aggregate Bond Index.

What’s Your Investment Personality?
Whatever your speed, make sure your investments are on the right track.

When it comes to investing, it’s always a good idea to understand who you are and how you view your portfolio. June Walbert, a Certified Financial PlannerTM practitioner with USAA, cites four of the most common types of investor personalities. Which one are you?

Full Speed Ahead
If you’re younger and have time, or if risk doesn’t keep you up at night, a portfolio of almost exclusively stocks for higher returns may be for you. But, Walbert says, the key is to stay diversified across stock types so you’re ready for whatever the market has to offer.

Driven with Caution
For those seeking higher returns but not willing to bet the farm, a portfolio with stocks plus some bonds may be right. “Putting 20 to 40 percent of your portfolio into bonds offers growth and the ability to temper swings in the market,” says Walbert.

Slow and Steady
Getting ready for retirement? You might want to move more into bonds to build savings and income. A combination of investment-grade, high-yield, and government bonds should be considered. “But don’t forget completely about stocks, and make sure you’re fully diversified for market volatility,” notes Walbert

Better Safe Than Sorry
If keeping what you have is what matters most, a conservative portfolio of mostly bonds for income may do the trick. “But still retain 10 to 20 percent in stocks,” says Walbert. “Every portfolio needs some potential for growth.”

Diversification does not guarantee a profit or prevent a loss.

Individual stocks will fluctuate in response to the activities of individual companies, general market, and economic conditions domestically and abroad. When redeemed or sold, may be worth more or less than the original cost. Other fees and expenses are applicable to owning individual stocks.

As interest rates rise, existing bond prices fall. 

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Originally published on USAA