Money Savvy » Is it time to take the money out from under the mattress?

Aug 19 2009

Is it time to take the money out from under the mattress?

Published by Author at 7:29 pm under Investing

(ARA) — There it sits in the mail pile or in your e-mail in box, waiting to be opened — your dreaded 401(k) or bank statement. While the specter of the sad statement doesn’t necessarily haunt all of us, you would have to search long and hard to find someone who has not been directly affected in some way by the economic chaos of late.

The market rollercoaster ride has caused many Americans to reach the end of their collective rope and pull their money out of the market. While the money has not necessarily gone under the mattress or in the coffee can, billions of dollars are sitting on the sidelines or in money market funds that offer little to no yield.

“There are options out there for investors who want to get back in the game, but play it conservatively,” says Jim Thomsen, executive vice president, member services, for Thrivent Financial for Lutherans, a not-for-profit financial services organization. “Even with those conservative options, consumers should expect no less than 2 to 3 percent in return.”

So the question of what to do next is on the minds of many. For those of us who like to dip our toes in the water before jumping in, but hope for some level of return on our risk, Thrivent Financial offers advice about what financial products might be worth checking out now.

Money Market Accounts and CDs

Simple, tried and true … or at least they used to be. The act of regaining enough confidence to put your money back in the bank is a big step for those who have lost their trust in the system. Look for a bank with federal deposit guarantees which will give you the peace of mind you need to know your money is safe.

Money market accounts are a great choice for those looking for an interest rate that can grow in direct correlation with the amount of money you put into your account. Completely liquid and like a standard checking account, you can write checks out of a money market account at any time. In addition, money market accounts offer a greater return than a standard savings account under most market conditions. Retail money market accounts have been very stable even given the market turbulence of late.

CDs usually require a greater upfront deposit and in return you will usually receive a higher rate of return than with a money market account. Keep in mind that in most cases you cannot access the money you put into a CD before the maturity date without a penalty. However, some companies now offer a flexible CD which gives you the ability to withdraw up to half of the initial investment without a penalty.

Annuities

Long used as a tool for retirement planning, fixed annuities are undergoing a surge in interest as a tool for those looking for a predictable source of income. The fixed annuity is actually a contract with an insurer in which the insurer agrees to repay your money plus interest in a lump sum or over a period of time you select.

Fixed annuities pay interest at a fixed rate, which is usually established when you purchase your annuity. A fixed deferred annuity may be right for you if you want guaranteed, dependable growth and plan to take the money out down the road. Otherwise, look to a fixed immediate annuity for income payments that will begin right away. Either way, as annuity guarantees are backed by the claims-paying ability of the insurance company, look for a company with a high rating.

Interestingly, while not as conservative an option as fixed annuities, some companies are starting to note a renewed consumer interest in variable annuities. Variable annuities values can fluctuate over time, according to the performance of the underlying investment options and fixed accounts selected.

“A renewed focus on variable annuities could be a sign that consumer confidence in the market is starting to bounce back,” Thomsen says. “Variable annuities with features such as dollar cost averaging, in which the owner puts a set amount of money into the variable annuity sub-account of his or her choice on a monthly basis, is proving to be a popular choice. It is an easy way to ensure that you are well-positioned to take advantage of a market rebound.”

Mutual Funds

For those who might be ready to be a bit more aggressive with their investments, but still are looking for something on the more conservative side, limited maturity bond funds and municipal bond funds are two types of mutual funds that warrant a closer look. Limited maturity bond funds invest in corporate, government and municipal bonds as well as asset-backed and mortgage-backed securities. They often have a higher risk/yield than money market funds, and lower risk/yield than longer-term bond funds. Municipal bond funds generally invest in a diversified portfolio of municipal bonds and offer income that is exempt from federal and, in some cases, state income tax.

While there is no “one-size-fits-all” answer when it comes to what to do with your money now, there are several options to consider that can help you get back in to the game without taking too much risk. Talk to your financial professional, go to www.thrivent.com, or call (888) 834-7428 to learn more about what you can do next.

Courtesy of ARAcontent

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