Boomers: Top 4 Safest Investments for Your Portfolio

As you approach retirement you start to think more about preserving what you’ve saved rather than achieving aggressive growth. You don’t want to lose the portfolio that you worked so hard to build. However, most people who make it to the age of 65 are living almost 20 years in retirement. Social Security data shows that a man who reaches age 65 can expect to live until 84.3; for women, that age rises to 86.6; and one out of every four 65-year-olds live past age 90. So preservation, though critical, may not be enough.

What’s more, there is another key factor to consider: inflation. Inflation, even though it has been low in recent years, can still rob your savings. 

Your portfolio needs to grow at least above the rate of inflation in order to continue to have the purchasing power you will need in retirement. In today’s economy bank savings accounts earn less than 1%, so they are not a safe hedge against inflation. While they may preserve capital, you can still lose to inflation in the long term. (See also: How Inflation Eats Away at Your Retirement).

Bank savings accounts are good for short-term cash needs in the next year or two, but you should look to other relatively safe options for the rest of your portfolio. Let’s take a look at the top four safe investments that will allow you to sleep at night but still preserve your portfolio from inflation.

CDs are offered by banks and insured by the Federal Deposit Insurance Corporation (FDIC), which make them just as safe as a savings account, but you must leave your funds in the account anywhere from three months to 60 months; withdrawing them before that will cost you a penalty.

Some CDs are offered through brokerage companies, but the FDIC likely does not insure them. Interest rates vary based on the time you must leave the money in the account and the dollar amount you have on deposit. Nerdwallet provides an excellent search tool for comparing CD rates. While these investments are insured, they may earn enough interest to serve as a hedge against inflation.

U.S. government bills, notes and bonds, also known as Treasuries, are considered the safest investments in the world and are backed by the government. These investments are sold by brokers in $100 increments, or you can buy them yourself at Treasury Direct. 

• Treasury Bills – These mature in four weeks to one year. They are sold at a discount to their face value, and then you are paid face value at full maturity.
• Treasury Notes – These range from two to 10 years in length. They pay interest every six months that you hold them. They can be sold at a price equal to, less than or greater than their face value, depending on demand. Notes with a higher interest rate will likely have more demand, so their price will probably be greater than their face value.
• Treasury Bonds – These mature in 30 years and pay interest every six months that you hold them. While the interest rate is guaranteed, the purchase price goes up and down, and you can take a significant loss if you need to sell them prior to maturity.

State and local governments sell municipal bonds to build local infrastructure and other projects for the public good. These are not only safe; they are also tax free, which can be a great bonus for any savings you have outside an IRA, 401(k) or similar retirement investment. They are not a good option for tax-deferred retirement accounts because they earn lower interest rates than other types of bonds, and you don’t need a tax-free investment for qualified retirement accounts. Be careful though; always check the ratings before buying municipal bonds, as some are safer than others. BondsOnline is a good research resource.

Bond mutual funds can be a good alternative to buying bonds directly. As with any mutual fund, you buy the number of shares that you want, and a professional money manager researches the best bonds from those included in the fund’s portfolio. The three types of bond funds considered safest are government bond funds, municipal bond funds and short-term corporate bond funds.

Once you get to retirement age, preserving your portfolio becomes a critical issue – but you can overdo it. Putting all your funds in an FDIC-insured bank savings account will not earn you enough money to keep up with inflation. Other slightly more risky investments can minimize the loss of your portfolio to inflation, but still offer little chance for growth. A portfolio that balances safety and growth is always best. (See also: 6 Unusual Retirement Tips for Boomers.)