Paragon Wealth Management advised conservative investors to think twice when investing in CDs or money market funds.
“Investors who save money in CDs and money market funds don’t have a lot of options right now,” said Dave Young, president and founder of Paragon Wealth Management. “With inflation rates at 3 to 4 percent and interest rates between 0.5 and 1.9 percent, savers are actually losing money in their “conservative” accounts.”
Ben Bernanke, chairman of the Federal Reserve, said they’ll keep interest rates this low until sometime in 2014.
“Savers can either stay ultra conservative, and watch their savings go down each year or take a little more risk in order to get higher returns,” said Young. “On a one to ten risk scale, with ten being the most risky, I believe that many investors would benefit by slightly moving up the risk scale. If they move from a level of one to a three or a level of three to five they could potentially, significantly increase their earnings.
Young said, “On the other hand, investors shouldn’t jump from very low to very high risk. That is usually when you see problems. Sometimes investors get tired of earning one percent, so they quit and move over into something extremely aggressive that promises a 20 percent return. He cautioned investors not to get extremely aggressive and invest in things they don’t understand, because that is often when they lose everything.”
“It is important for investors to determine their asset allocation based on their individual risk tolerance,” said Young. “This will help them stay invested over the long-term and optimize their investment choices.”
Making sure your portfolio is structured properly is more important than ever with interest rates this low.
Watch this video to learn more about how to invest when interest rates are low.