Should I have a conservative strategy? What if your goal is to build your portfolio, your money fast? In most cases the answer is ‘yes’, you should invest some of your money conservatively.
If you follow the principle of diversification, whether you are a conservative investor or an aggressive one, there is always room for a safe investment, for a profitable investment that minimizes risk.
Talking about a conservative strategy does not mean that all your investments must be conservative. If you’re diversifying your money with seven or eight stocks (or ETFs or mutual funds), then one of these can surely be a conservative investment. There are several ways to have a conservative investment, a strategy based on low risk but incorporating the goal of a profitable investment.
Three Types of Conservative Strategies
- jumps
- High dividend stocks (or ETFs or funds)
- Core ETF Indices
Jumps:
Create a group of 10-15 bond funds or ETFs, each slightly different from the next so that you have options to choose from. For example, corporate versus government bonds; long term versus short or medium term.
With a pool like this, you can switch your money from one type to another depending on the economy to take advantage of the type that produces the best return, paying the most interest.
The drawback to using bond mutual funds is that fund families typically place restrictions that require you to hold the funds for 60 to 90 days to avoid trading penalties. Bond ETFs trade like stocks and therefore have no trading restrictions.
The other caution with using bonuses is to make sure you don’t double down. In other words, don’t have a short-term government bond from Fidelity and Vanguard because in analyzing and making buy-sell decisions you could end up moving from one to another of the same type when you should be moving to a totally different one. gentle; that is, to go from short to long term.
High Dividend Stocks (or ETFs or mutual funds)
Generally speaking, high-dividend-paying stocks are relatively stable while growing at a slow but steady rate. These stocks pay dividends (like earning interest on your money in a savings account) not just above the rate of inflation but at rates of 4-8% per year.
Again, you can put together a group to watch these actions. You can find them by searching on the Standard & Poor’s® website, through Morningstar®, or on your broker’s website.
Remember that when you invest in these types of stocks, you only get the benefits of dividend payments if you hold them for the medium to long term. If you trade frequently, you will miss out on dividends unless you get lucky. If you invest in ETFs or high-dividend stock-based mutual funds, you have a better chance of getting the interest payments.
Core ETF Indices
You can build a small pool of ETF index watching, just 3 – 5 ETFs to follow for safe and profitable investing. Such a group will allow you to move from one conservative position to another. One pool I’ve used contains:
- SPY – SST Spider 500 emulating the S&P 500
- IEF – iShares 7 – 10-year Treasury Bond
- MINT – PIMCO Enhanced Short Term Maturity
I compare the performance of these to the S&P 500 to assess which is performing better and where to put my money.
By using one of these types of investments in your portfolio, you can minimize risk and have a fallback strategy for when the markets crash and you want to move your other money from more aggressive strategies to a safer position until the markets start to grow again. .