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The 5 Safest Investments for Building a Retirement Nest Egg

When it comes to retirement investments, safety should be your primary consideration. These five investments will let you sleep easy, knowing you can depend on your retirement income.
When it comes to retirement investments, safety should be your primary consideration. These five investments will let you sleep easy, knowing you can depend on your retirement income.

There's a place in your portfolio for high-risk or even moderate-risk investments. Investments with more risk have the potential to pay out more — sometimes astronomically more.

But when it comes to retirement, you aren't necessarily looking for huge returns. You're looking for dependable, low- or no-risk investments that will pay out a regular income. You're looking for safe investments.

So what are the safest investments for retirement? We have some ideas.

Real Estate

Value is based on supply and demand. So what could be more valuable than something with an absolutely fixed supply, and steadily rising demand?

Real estate is the safest investment you could possibly make. With some smart advice from an experienced professional, your risk is negligible, and with a savvy real estate agent helping you find investment properties, your wealth will be on course for steady growth.

Owning a rental property means you're going to be getting a check in the mail every month, and if you own several rental properties, well, you get the idea.

Of course, just because real estate is low risk, doesn't mean it's low-hassle, especially if you're renting your property. Being a landlord can be a whole lot of work, and if you aren't inclined to unclog toilets and fix leaky roofs for your tenants, hiring a property manager is typically going to cost you between 6% and 12% of your collected rents.

An alternative way of generating income with your property is to sell it and issue the mortgage yourself. This isn't as complicated as it might sound.

“Holding the mortgage,” as it's known in the industry, just means making a private agreement between yourself and a buyer. Though you'll probably need a lawyer or real estate professional to help draw up the agreement, there won't be any banks or financial institutions involved, meaning that neither party will have to deal with the red tape and procedural requirements of the traditional, drawn-out closing process.

Basically, you draw up a contract that stipulates the buyer will make mortgage payments directly to you over a set period of time. These private mortgages are often much shorter than the traditional 30-year mortgage, meaning you'll get more money per month, and since you've sold the place as opposed to renting it, you won't have all the responsibilities of a landlord.

As long as you find a suitable buyer, this can be a very safe, and very lucrative way to make your real estate produce income.

Bonds

When you're buying a bond, you're buying debt. So if you're buying, say, a United States Treasury bond, that means the US Treasury is now obligated to pay you interest.

Obviously, this is one of the safest investments you could possibly make because the US Treasury isn't going anywhere. Same with bonds issued by large, financially sound corporations; when you buy bonds from these entities, you're basically investing in their continued stability.

If you choose wisely, bonds can be one of the safest investments around.

As with real estate, there are different ways you can buy into the bond market. Aside from just simply buying bonds, you could also buy into a bond fund.

There are many types of bond funds — long-term or short-term, governmental or corporate, international or domestic — so you can choose the type of bonds to invest in while having built-in diversification. These funds are managed, so they should have a safe, steady return, though keep in mind that management also comes with fees.

An interesting happy medium between buying bonds and buying into a bond fund is the bond ladder, which is a method of managing bonds of different interest rates and maturities to reduce risk and even out your income.

Basically, as different bonds on the ladder mature, they're either reinvested if present interest rates are advantageous or, if interest rates have fallen, the cash is pulled out an invested elsewhere, or just socked away in the bank. Administering a bond ladder can be complicated, but it can also ensure a steady income, and cushion you against market fluctuations.

REITs

If the real-world hassle of owning or renting physical, brick-and-mortar real estate is a dealbreaker for you, there's still a way for you to get in on the real estate bonanza.

A Real Estate Investment Trust, or REIT, is a financial company that manages large portfolios of real estate — usually commercial properties or large-scale residential projects. REITs sell shares and pay high dividends.

While it's not quite as safe an investment of owning physical real estate, it's close. After all, what's the real estate market but the collective value of individual real estate properties? (That's a whole article in itself, but you get the point.)

Savings

Money socked away in a bank savings account pays a very low-interest-rate — usually around 2% (as of March 2019) and, in down years, close to zero — but it does pay. And there's nothing safer than cash in a savings account.

Like the US Treasury bond mentioned above, that money is guaranteed by the government. The government isn't going anywhere — and if it somehow does collapse or dissolve, you're going to have much bigger problems than your retirement portfolio.

There are also high-yield savings accounts offered by online banks. Since they don't have the overhead costs associated with brick-and-mortar banks, they can pay out higher interest rates.

These rates still won't be higher than the cost of inflation, meaning they aren't great long-term investments, but they can be good in the short- or medium-term.

Annuities

Annuities offer the dependability of a pension or Social Security, along with the tax benefits of a life insurance policy. It’s similar to a reverse mortgage, though it doesn’t necessarily involve your home.

Basically, an annuity is a fixed payment you'll receive for a certain term, or for life, in exchange for a lump sum you invest with the life insurance company.

Yields are generally very competitive, as are minimum rates, and you can defer taxes on them for quite a while, making them a great choice if you're in a higher tax bracket.

Best of all, the insurance company guarantees your principal investment. It doesn't get much safer than a guarantee!

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