You Need a Conservative Strategy – Here’s Why
Regardless of what type investor you are you should invest some of your money conservatively. If you follow the principle of diversification, regardless of your style of investing, there is always room for profitable investing that minimizes risk. This is especially important for a retirement focused portfolio.
This doesn’t mean all your investments must be conservative. If you are diversifying your money with seven or eight stocks, or ETFs, or mutual funds, then one of these can surely be a conservative investment.
There are three main types of conservative strategies.
Bonds. Create a group of 7–15 bond funds or ETFs, each slightly different from the other so you have choices from which to pick, such as corporate bonds versus government or long-term versus short-term. With a group like this you can shift your money from one type to another depending upon the economy to take advantage of whichever is producing the best return.
Remember, the drawback to using bond mutual funds is that the fund families usually place restrictions that require you to hold the funds for 60–90 days. Bond ETFs trade like stocks and so have no trading restrictions.
Be sure not to duplicate. Don’t have a short-term government bond from Fidelity and another from Vanguard because when analyzing and making buy/sell decisions you could end up just moving your money from one to another of the same type when you should be moving to a totally different type bond (i.e. going from short-term to long-term).
High dividend stocks. Generally speaking, stocks that pay high dividends are relatively stable while they grow at a slow but steady rate. These stocks pay dividends, which is similar to earning interest on your money at rates of 4 – 8 percent annually.
Remember that when investing in these type stocks you only reap the benefits of the dividend payouts if you hold them mid- to long-term. If you trade frequently you will miss out on getting the dividends unless you just luck out. Investing in ETFs or mutual funds based on high-dividend stocks gives you a better chance of reaping the interest payments.
Basic ETF indexes. You can create a small watch group of three to five ETFs to follow for safe profitable investing. Such a group will enable you to move from one conservative position to another. One group that I have used contains:
- SPY–SST Spider 500, which emulates the S&P 500
- IEF–iShares 7–10 year Treasury bond
- MINT–PIMCO enhanced short maturity
I compare the performance of these against the S&P 500 itself to gauge which is doing the best and where to put my money.
Pick one of these investment types for your portfolio and you will minimize risk and have a fallback strategy for when the markets go south and you want to move your other monies out of your more aggressive strategies into a safer position until the markets start to surge again. You can create any of these easily with Dynamic Investor Pro investment software.