What is the best option for zero risk investing?

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dpow
Posts: 20
Joined: Thu Feb 08, 2024 2:08 pm

Re: What is the best option for zero risk investing?

Post by dpow »

retiredjg wrote: Thu Aug 08, 2024 12:53 pm
dpow wrote: Thu Aug 08, 2024 4:59 am Okay, so I was just looking at my Fidelity account, and if I'm understanding this correctly, it appears that the small amount of money in my account that isn't invested in FXAIX automatically gets put into a SPAXX money market account that currently has a rate of 5.10 percent. I never noticed that until now because I barely have any extra cash in my account that isn't invested in FXAIX. So if SPAXX is currently earning me 5.10 percent, which is about the same rate as all of my high yield savings accounts, then should I just go ahead and close out all of my bank accounts and consolidate all of that money into my Fidelity account, which would still earn me 5.10% with SPAXX, in addition to my primary investment with FXAIX? So I would have 50% FXAIX and 50% SPAXX, rather than having 3 additional banks. Would that be easier than what I'm currently doing?
I think it would be easier than what you have right now. But is it the best long term solution?

A portfolio that is about 50% stocks should be expected to lose 25% of its value in a very bad market downturn like we had in 2007 - 2009. In that scenario (worse than most market downturns) your $1million would drop to about $750k and could stay there awhile. In a less terrible market downturn, it would still be expected to drop to about $800k for some months. Those are the risks you are looking at right now.

Is that a risk you are willing to take? Do you believe you could tolerate that much loss for a few years (not a few weeks or months like the COVID crash)? Do you think, even if you could gut it out for a couple of years, you would be comfortable waiting out the bad time?

If the answer is "no" to any of those questions, then consider if a 50:50 portfolio may be too risky for you.

With your strong desire in earlier posts to be 'risk free", I do have to wonder if 50:50 may be more than you will be comfortable with when times get bad. I'm thinking that something like 20% stocks to 30% stocks might be a better place to be. Also, with your low rate of spending, you don't need to be at 50:50 in my opinion. There is no reason to take risk you don't need to take if it will cause you to be uncomfortable.

You might ask "why not go all bonds/money market"? A portfolio with a small amount of stocks should have greater returns than a portfolio that is all bonds....and it also has less risk!

We don't know anything about your income at this point, but chances are you are in a very low bracket or do not even have to file taxes. For that reason, my suggestion is that you use one simple fund for all your money - a Fidelity Target Income fund made up of index funds. I don't usually suggest target date funds for a taxable account (an ordinary account that is not an IRA) because they are not very tax efficient, but it seems that may not apply to you.

FIKFX Fidelity Freedom Index Income Fund has about 20% stocks (some in foreign stocks) and 80% bonds.

What might be a better idea is to pick the fund that has about 30% or 35% stocks now and it will migrate to 20% stocks over the next several years. FLIFX Fidelity Freedom® Index 2015 Fund Investor Class currently has about 35% stocks and is migrating to a lower stock allocation every year.

From what you have told us, I believe you will be more comfortable choosing one of these rather than staying at 50% stocks.

What do you think?
That's a good assessment. I haven't spent much time looking at things like the Freedom Funds yet, but I was definitely considering scaling back my stocks to something like 25% of my portfolio rather than doing 50/50.
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retiredjg
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Joined: Thu Jan 10, 2008 11:56 am

Re: What is the best option for zero risk investing?

Post by retiredjg »

dpow wrote: Fri Aug 09, 2024 1:35 am That's a good assessment. I haven't spent much time looking at things like the Freedom Funds yet, but I was definitely considering scaling back my stocks to something like 25% of my portfolio rather than doing 50/50.
I think scaling back would be wise, at least for the first few years until you get accustomed to how portfolios grow and shrink all the time. It does not have to be Fidelity Freedom funds (but if you go that route, use the Fidelity Freedom Index series instead of the plain Fidelity Freedom series which has higher costs).

This could also be done with just 3 funds or 3 funds plus money market. But you'd have to rebalance that yourself.

Fidelity also offers some asset allocation ETFs from iShares if you are interested in using and ETF instead of a mutual fund. AOK is the conservative one and it is 30% stocks and 70% bonds and this stays the same....it does not migrate to a more conservative position over time.
prospermore
Posts: 7
Joined: Sat May 18, 2024 9:34 am

Re: What is the best option for zero risk investing?

Post by prospermore »

Unlike the OP I did experience 2000-02, 2007-2009 stock market declines, so like the OP I get the fear and emotions.
However it is inherited money, (not really earned) and since it's my subjective confined perspective opinion and to invest conservatively I would invest 50% in an ETF; DGRW, VTI, or SCHD in that order and the other 50% in 98% safe 5%+ yield instruments. The former have grown in the double-digits annually for approx. a decade.

No investment is 100% risk free. The U.S. could be in a war in the blink of an eye with IRAN who is ally of Russia, No. Korea, and possibly China. Markets will fall hard. if you have fears of a market crash you could hedge with a bear inverse ETF. Not a great idea b/c the market goes up 80-90% of the time. Expert economists, Elliot Wave theorists and fear authors have been touting a bear market since 2016.

Is there a reason you need the money to be ultra-safe? as in to help in the purchase of real estate within a year?

A 5% yield is not much when many individual consumer items are still inflating at 10% plus/year or more due to poor govt. control of money & commerce.
carminered2019
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Joined: Fri Jun 21, 2019 7:06 pm

Re: What is the best option for zero risk investing?

Post by carminered2019 »

Do you have a mortgage and what is the rate ? pay it off if you want 100% risk-free investment.
jec1ny
Posts: 18
Joined: Sun Oct 27, 2024 12:37 pm

Re: What is the best option for zero risk investing?

Post by jec1ny »

I concur with the majority of comments in noting that there is no such thing as "zero risk." That said there are options for investors who are either by choice or necessity looking for a conservative, i.e. low risk, investment strategy. I can think of two portfolio options.

* A one and done portfolio centered on VWIAX with a substantial reserve of cash and maybe a little gold on the side.

* The so called "Permanent Portfolio" devised by the late Harry Browne. This has generated extensive discussion both on this forum and elsewhere on the internet. In a nutshell you hold four assets in equal portions...

25% in a low cost stock index fund
25% in long dated treasuries
25% in cash or T Bills
25% in gold

Rebalance anytime one of the assets hits 35% or drops to 15% of the aggregate value of the portfolio. It's completely counter intuitive, but back testing to the mid 1970s has shown the portfolio to be remarkably stable (low volatility) while generating a moderate real (inflation adjusted} return. Some people have likened it to a financial bomb shelter. You won't keep pace with the S&P using this. But the likelihood of taking a really severe hit is extremely low.
gavinsiu
Posts: 6329
Joined: Sun Nov 14, 2021 11:42 am

Re: What is the best option for zero risk investing?

Post by gavinsiu »

How soon do you need it. If you need to access it all suddenly, MM is probably your only choice or maybe T-bills. If you only need part of it, you can build something like a rolling TIPS ladder say for 5-10 years. For example, if you divide the million into 5 parts, and invest in 1,2,3,4,5 year TIPS. When you 1 year matures, youc an buy another 5 years.

The reason for TIPS is due to inflation. Money market are stable but they might lose to inflation. If you make 5% from your money market and inflation is 9%, you actually lost 4%. In the case of the rolling ladder, you can unroll it if you need the money one year at a time. You should probably hold some cash outside of the ladder since you would still need to wait for the 1 year to mature. You also need to pay taxes on the inflation adjustment.
bog007
Posts: 588
Joined: Fri Feb 28, 2020 2:27 am

Re: What is the best option for zero risk investing?

Post by bog007 »

buffered etf by blackrock
Don’t let anyone else ruin your portfolio. It’s your portfolio. Ruin it yourself!!!
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