No. of Recommendations: 2
Sadly, avoiding risk completely is a tall order. That puts you into fixed income investments where yields are very low just now.

Paul,

In order to avoid something, it first has to be defined. If by ‘risk’ the opening poster means ‘the loss of nominal-principal’, then you might be correct that his only choice is ‘fixed-income’.

However, if ‘risk’ is defined more meaningfully as ‘loss of purchasing-power’, then he has no choices anywhere within the investing world, nor within the cash-management world, because nothing he could choose lacks both the possibility of loss of nominal-principal and/or the loss of purchasing-power. Nothing. The POS derivative known as TIPS merely provides a way to short the CPI. But it does not fully protected against the loss of purchasing-power as ordinary householders experience inflation within their own lives.

There are only three betting games one can play with money: cap-appreciation, cap-preservation, and cap-conservation. If a person’s intention is to hang onto as much of his already acquired purchasing–power as possible, then ‘risk’ in the sense of ‘possible loss of nominal-principal’ has to be accepted, which is the path you do propose to him. Whether that’s the best path is a whole ‘nother matter. But with the markets (both stock and bond) at unsustainable highs (due to the Fed’s free money policies), I doubt that going long now, and at these prices, is a smart thing to do.

However, a hedging strategy might be just the ticket. Setting one up would require a bit of work, and it isn't without costs. But it's probably a better bet than the conventional solutions for surplus cash.

Charlie
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