Profile of an Ultra-Conservative Investor – Investing Personalities

What’s your investing personality? If you were to listen to a conservative investor (a really really conservative investor) describing himself, here’s what you might hear:

I am an ultra-conservative investor. I simply don’t want to lose any money. Either I need to spend 100% of that money in the near future, or I’m just not comfortable taking risks. I realize that I might earn little or nothing on my savings, and that’s perfectly all right with me as long as I don’t lose money.

As the old saying goes, I’m more interested in the return of my money than the return on my money.

Investments for the Ultra-Conservative

5408163733_612bbc6143_m_d[1]Ultra-conservative investors might prefer to use bank accounts, certificates of deposit, short-term government-issued bonds, and (in some cases) fixed annuities. For a page full of ideas, see our list of safe investments.

These investments typically pay a low interest rate, but the investor’s money is not in the markets. The interest rate earned usually depends on interest rates in general: if interest rates are high, savings accounts pay more.

No Risk?

Ultra-conservative investors can generally avoid market risk (that is, they should not lose money when the markets go up and down), but they can’t avoid risk altogether. Being ultra-conservative with your money means that it probably won’t grow much, and if it does it’s very unlikely to grow faster than the rate of inflation. That may be fine for some investors, but it’s important that they be aware that no approach is completely risk-free.

Why is inflation a problem? Prices tend to rise over time, and that means you lose purchasing power if the value of your assets doesn’t rise along with prices (or if your income doesn’t rise as prices do). $4.00 might buy you a gallon of milk today, but what about in 10 years? That gallon of milk will cost more – possibly twice as much.

If you keep all of your money in ultra-conservative investments, you need to account for the possibility of rising prices. You’ll need to be able to absorb those higher costs, and that means you’ll need to sock away a lot more money because, with inflation, you’re going to eat into a more and more of your savings as time goes on.

Ultra-conservative investments are great for short-term money. If you plan on spending some money in the next one to five years, a bank account is not a bad place for that money. However, over longer time periods, inflation will eat into your savings. This doesn’t mean you can’t be ultra-conservative or that it’s a dumb idea. All it means is that you need to know what can happen over time if you use safe investments, and plan accordingly.

So, if you have money stashed away that you don’t intend to spend for 20 years or so, consider the possibility that you won’t be able to buy nearly as much with that money as you can buy today.

Other types of investment personalities include:

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