WHETHER YOU’RE RUNNING a trust account worth billions or a bank account worth considerably less, there are times when you just want to play it safe. Maybe you’ve grown less tolerant of risk. Maybe you’ve got a major expense coming up or are just sick of seeing your account balance drop.
Whatever the reason, it’s okay to downshift your risk from time to time — as long as you do it right. For most people, “playing it safe” means selling their entire portfolio and stuffing their assets into a seemingly risk-free investment — most likely a CD or money-market or savings account. But even leaving aside the tax bite that comes with selling long-term positions, stuffing your money in the proverbial mattress is a losing move.
There’s no such thing as a free ride. Savings accounts and CDs are insured, but you’re paying for every bit of that safety in the form of mediocre returns. Even uninsured money-market funds are paying a record low 1.35% interest. The return becomes even more depressing after taxes. (more…)