This is part of a series on investment personalities. We started with an ultra-conservative investor, so now let’s move to the moderately conservative investor. How might these people describe themselves?
I am a moderately conservative investor. I would like for my assets to grow, but I don’t like the idea of taking large risks. As such, I am willing and able to accept a lower rate of return on my investments than a more aggressive investor.
I realize that life is full of tradeoffs: on the one hand, I won’t fully participate and earn a lot of money when the stock market goes up. On the other hand, I won’t lose as much (and experience the accompanying anxiety) when the market goes down. I’m okay with those tradeoffs, and I prefer to be more on the conservative end of the risk/reward spectrum.
I don’t think that the bank is the right place for my money, and I would like to earn a little bit more than the bank pays, but I don’t need to earn a that much more.
Investments for the Moderately Conservative
Moderately conservative investors tend to invest in a mix of stocks and bonds, with most of their money in bonds. As a very rough estimate, they might invest 25 to 30% of their money in the stock market. “Alternatives” can also be an important part of a moderately conservative investor’s portfolio. Their goal is to participate in the stock market to a small degree, and take some modest risks with bonds in order to earn a little bit more interest than they can get at the bank. The bond to portion of their portfolio is meant to help balance out the ups and downs of the stock market (mostly the downs).
Moderately conservative investors can probably do a little better than the bank over long periods of time. However, they have to be okay with the fact that they will lose money occasionally. Ideally those losses will only be temporary, but it may be uncomfortable. In 2008, for example, even supposedly “conservative” investments took substantial hits.
Risks for Moderately Conservative Types
There are a few risks that a moderately conservative investor might face. One is the risk if freaking out with the markets go haywire. By definition, moderately conservative people don’t want to see major changes (to the down side) in their account balances. However, the only way to completely eliminate that risk is to use something like a government guaranteed bank account. Moderately conservative people also invest mostly in bonds, which means they face risks specific to the bond markets. In particular, bonds can suffer when interest rates rise. So, bond investors may be taking a lot more risk than they realize if interest rates are about to go up.
Finally, safer investments generally don’t outpace inflation, but that may be fine for some investors who want to take less risk. They just need to account for the possibility of rising prices when planning for retirement. Many people assume that their budgets won’t change when they stop working, but a long, active retirement can have serious effects on your savings.
