By Joe Bonfanti
Wouldn’t it be nice to find the perfect investment? As financial professionals, people turn to us to help them find the “real deal.” The truth is: We are still looking for it.
But here’s an idea of what just such an investment, if it existed, might look like:
Gives a high rate of return. A yield high enough to outperform inflation and taxes and still give you a decent return.
No income taxes ever. There would never be any income taxes due on the investment growth. You get to keep all it earns.
Easy and simple. Something that anyone could manage without any special knowledge.
No risk. There would be no chance that any part of the investment could ever be lost.
Always available. You could redeem the investment — and receive the cash — anytime without penalty.
It would be particularly appealing if an investment with all of these features existed, but truth be told, it simply does not. That’s the bad news.
The good news is that understanding the answers to the following questions will go a long way to help you narrow down the alternatives and make a wise selection.
What is the purpose of the investment? Do you need income for current expenses or are you accumulating money for a future need?
When will you need the money? Will you need it next week, next month or when you retire.
What is your tolerance for risk? Will you lose sleep if the value goes down or are you patient enough to wait for a rebound?
Are income taxes a concern? If you are in a high-tax bracket you may be looking for a different type of investment.
How strong is the economy? This can determine which investment will best suit your needs in the coming years.
What amount do you have to invest? If you have a large lump sum you will probably seek a different investment than someone who has a smaller amount to invest.
So what is the perfect investment? Well, depending on your particular situation, it could be a wise assortment of cash and saving accounts, mixed with a few equity-based instruments and/or annuities, to go along with your insurance and real estate.
Or, in other words, we have yet to find just one investment that alone is perfect.
Joe Bonfanti is a partner and investment analyst at 1847Financial in Conshohocken.