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As you age, it’s generally a good idea to start slowly reducing the risk in your portfolio. When you are young, not only do you have a rising income stream coming from your job, you have plenty of time to recover from any bear markets. But, if you’re at the end of your career or perhaps even retired, your income likely won’t be increasing anymore, and you will have little to no time to bounce back from any selloffs.
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This is why seniors should generally have a significant portion of their portfolios in safer investments. But what exactly qualifies as a “safe” investment? While all investments carry risk, here are some best options when looking for safe investments for seniors.
In terms of the risk of loss of capital, U.S. Treasury bills are often referred to as the safest investments in the world. All Treasury securities are backed by the full faith and credit of the U.S. government, meaning it will always pay them off, even if it needs to print more money.
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Treasury securities still carry interest rate risk, meaning if you sell them before maturity you may lose money if interest rates have risen. But that is why Treasury bills in particular are extremely safe. They are issued in very short maturities, with the longest being 52 weeks, so interest rate risk is minimized.
Certificates of Deposit
Certificates of deposit don’t carry the backing of the U.S. government in the same manner as Treasury securities, but they are insured by the Federal Deposit Insurance Corporation to the tune of $250,000. Note, however, that this coverage limit applies to all accounts owned by an individual at the same institution. To supplement this coverage, many banks and brokerages carry supplemental insurance as well. Either way, as long as you don’t exceed the coverage limits, CDs are nearly just as protected from default as Treasuries.
High-Yield Savings Accounts
High-yield savings accounts, particularly those issued by online institutions, can often carry interest rates close to or even exceeding those you’ll find with CDs, and they still carry the same type of FDIC insurance. One advantage that savings accounts have over CDs is they don’t have any penalties for early withdrawal, as most CDs do. Before the coronavirus pandemic, withdrawals from savings accounts were limited to six per month, but currently …….