How to invest safely without risking it all

Recently, markets have experienced extreme waves of volatility, leaving investors worried and anxious about their hard-earned savings.

Clients are asking whether it’s still a safe option to be invested in stocks and mutual funds, for example. I’m here to say it depends on your financial plan, now and in the long term. As always, market volatility is expected and completely normal.

However, if you’re having second thoughts about your portfolio consider some of the safer known options below and schedule a review with your financial adviser.

Bonds
Bonds provide a steady source of investment returns in the form of interest and are generally a safe place to stash your cash.

A bond is issued when cash needs to be raised, like a loan. Think of yourself as the lender (bank). You provide the loan (initial investment) and in turn receive interest at regular intervals for a certain term. At the end of the term, you receive your initial investment back.

Government bonds may be issued for purchase in order to fund a major project like a city bridge.

There are a wide variety of bonds to choose from. Deciding on what’s right for your portfolio should be part of your conversation with a trusted financial adviser.

GICs and AAs
Guaranteed Investment Certificates (GICs) also provide a guaranteed source of interest on your investment. Much like a bond, a GIC allows you to set aside your investment for a certain length, commonly up to five years, and in turn receive a guaranteed interest rate of growth on your savings.

Accumulation Annuities (AAs), act like a GIC with an insurance wrapper. AAs provide a guaranteed interest rate of growth when your investment is held to the agreed upon maturity date.

However, unlike GICs, AAs allow you to name a beneficiary to receive your investment savings in the event of your death. This simplifies the estate settlement process and ensures your money goes directly to your loved ones.

Money Market (Mutual) Funds
A mutual fund is a pool of money accumulated from investors who have the same general objectives in mind. The mutual fund’s cash is then managed by professional investment advisers who determine where it is best suited to grow. For example, a mutual fund could be invested in a series of stocks or bonds or both.

Money market-based mutual funds primarily stick to low key investments such as bonds. This makes them a safe place to park money while still deciding where to invest for the long term.

Keep in mind that money market funds are still mutual funds that are susceptible to market highs and lows and therefore provide no guarantees.

Segregated Funds
Think of a segregated fund as a mutual fund with an insurance wrapper of guarantees.

First, investing in a segregated fund requires you to leave your money for a 10-year period. However, you can sleep soundly knowing you have a maturity guarantee. Each company varies, but generally the guarantee is set at 75 per cent of your initial investment. At maturity 10 years later, you will receive either the value of your investment or 75 per cent, whichever is higher.

Secondly, if your death should occur before maturity, your named beneficiary receives either the value of your account or a percentage of your original investment, whichever is higher. The death benefit guarantee can range between 75 and 100 per cent depending on the company that holds your fund.

The above investment options are just the tip of the iceberg. There are many ways to divide your portfolio among hundreds of investment opportunities. To keep things simple, start with the list above when you meet with your adviser. Happy saving!

Heather Tarnopolsky is a Sun Life Financial adviser in Greater Sudbury.