If you want safe, just buy an index fund with the lowest fees available. They beat actively managed anything the vast majority of the time anyway. Picking individual stocks is a fool’s game unless you are Warren Buffett (the unrelated Jimmy Buffett built his own empire around one 1970’s song but that type of thing is hard to predict).
The bottom line is that most of the financial industry is built on a stack of lies topped with false assumptions. If you want the safest results that also happen to be the best, just buy an index fund. You won’t get rich on an investment of that amount but you will get a much better return than a bank savings account.
The Vanguard Total Stock Market Index Fund (VTSAX) has an expense ratio of 0.05%. It only requires a $10,000 minimum. Wellington Investor (VWELX) is actively managed and has an expense ratio of 0.26%. Wellington Admiral has a lower expense ratio but a $50,000 minimum.
VTSAX beats VWELX on one year, three year, five year, and ten year returns. Since inception Wellington wins, but 1929 is a better starting point than 2000, so apples and oranges. I’d put in in VTSAX, That’s where 40% of my IRA is right now.
Doesn’t it to no small degree matter how you define “safe” and what your time horizon is?
The index fund is by definition something that will weather a downturn as well as well the index does which usually over a longer term means better than most actively managed approaches. But if one fears that the total market may be at significant risk for a 2008 style halving of its value, and you don’t have a 12 year or so time horizon for possibly needing the money, then doing what the index does may not be your safest bet.
Where do people who panic when the market begins to crash put their money as they panic?
Put some there and you may miss some upside of a Trump boom, if believe such is likely, but you’ll be in position to buy in on a Trump crash. I’m planning on moving some from my index funds into a gold fund within a few months. And some laddered bonds, along with a few decent dividend utility stocks.
Look at some of your local area utility stocks. They aren’t barn burners, but they usually pay 5-6% dividends and aren’t going away if the economy turns south. I bought Centerpoint Energy last fall at $19.46, which was moderately low in its usual range. I believe it is @26-27 today. I wouldn’t buy more at that price as my sell point is $32, but your local market may vary.
The only potential problem with index funds at this moment is that the market is at a peak, which means the price is at a peak. If Trump screws up the economy and the market makes a 30-40% correction, congrats, you just lost 30-40% of your money.
As mentioned, safest are index funds. Otherwise, conservative stocks are the best bet. Over the past couple of years I’ve owned stocks like Alaska Airlines, Kroger, Edward Life Sciences and Constellation Brands. All very conservative and all steady gainers. I sold them all when Trump was elected and showed a profit of about $17K, but had a larger investment than you have.
With $12K to invest, I’d definitely go with a fund, as you don’t really have enough to spread around in enough individual stocks to protect you from market fluctuations. Also, stock transactions with a company like Scottrade run you between $7 and $8 every time you buy or sell. With a conservative stock fund, you can set it and forget it.
There are utility index funds. They tend to have ok dividends and be pretty stable.
Another “utility” that tends to be good is cell phone companies - Verizon and AT&T both pay good dividends and have been stable.
Pharmaceuticals tend to be stable with good dividends.
Oil stocks tend to be volatile - but are generally decent investments - good dividends and if you can avoid selling after an oil spill when you panic, tend to increase over time. However, its one of those industries that you might have an ethical concern with.
I’d avoid Berkshire - unless you want to go to the annual meeting. We own a few B shares for that purpose and even Buffet says they’ve gotten too big for good returns. They don’t pay dividends - which can often even out losses. (I made about $2 a share holding Pitney Bowes for three years - but I made almost 10% each year in dividends for those three years).
Two thousand times, yes. And let’s be clear, Warren Buffett is winning a huge bet with a Wall Street stock picker. For this bet, the Wall Street type tried to pick good stocks. Buffett invested in an index fund and totally cleaned his clock.
Be smart like Warren Buffett: invest in an index fund with low fees.
Understand that the attraction of an index fund is that it more or less perfectly mimics the stock market. It tends to be superior to picking individual stocks or actively managed funds, on average. The market, however, oscillates. While in the long run it has, historically, gone up, there have been plenty of downturns in the interim as well.
So if you need this money to be cash again any time soon, equities may not be a great choice. But if you have a decade, or if you are ok with your 12 k being 8 k at some point, possibly the point at which you need it, you’ll be fine.
So let’s make a specific hypothetical - a reasonable possibility of needing the money sometime during the next five or so years and a person with a moderate amount of anxiety of the possibility a Trump induced crash.
On the one hand a broad index fund, such as an S&P tracker, will, over enough time, likely return something like 7 to 8% yield annually. Maybe a bit more, or less. Better than the vast majority of stock pickers.
But keeping money all in such a fund might subject it to a huge drop if a crash occurs and keeping it long enough to let it recover is possibly not going to be an option.
Given that time horizon what would you do? Is it cash? I don’t think so.
Stocks are not the best way for you if you need the money to be liquid. In that case, put it into a Money Market Fund until you can afford for some of it not to be liquid. Then put that in an index fund.
Since you quoted me, I’ll answer: I think money needs to work, so unless there’s a specific need, it’s not in cash. At times that may mean I have to take a loss, in the long run it has stood me in good stead. But that is not for everyone. Given the OP’s wording i suspected it may not be for him, his follow up post convinced me of it. Unfortunately it is very difficult to get a non-trivial return right now without equities. Perhaps op can look at opening a line of credit against their home to access in need without drawing against that now, and use the 12k to pay down their mortgage. They’d realize whatever their mortgage rate is (3%?) yet would have access to money if need be.
With my own money I might get creative, combining an index fund investment with some bought SPY puts at-the-money combined with twice as many written puts at 10 or 15 lower strike. This would give a largely cost-free hedge against a small drop, but unless actively monitored could mean significantly larger exposure if the market drops a lot more than that. This is not what I recommend to the OP or anyone else, I am not a financial advisor, and I can barely count past 14 on some days etc etc