Message Font: Serif | Sans-Serif
No. of Recommendations: 20
Hi CDMurray,

So, I'm certainly more of a bull then a bear, but i still want to keep some of my money conservatively invested. And these days, I don't know where to put it.

You are asking some really good questions. It is difficult to give good advice to someone without knowing more about their circumstance, such as their age, income, family responsibilities and time allotments to research and study.

There are really no conservative investments in my opinion. The very nature of investing entails risk. Even Cds, you risk inflation destroying the very value of those bank insured investments.

But there are conservative strategies

Looking for conservative investments has a short-term ring to it. A conservative strategy however, will allow you to diversify over many years and decades to obtain your wealth accumulation goals regardless of your belief in the long-term soundness of the market.

You stated you believed the market was overvalued. I can tell you assuredly it has been overvalued for nearly a decade and a half. It may be far more overvalued 30 years from now. Yet, in the midst of that market there will always be undervalued ideas. They are not easy to find nor would I be spend too much time trying to uncover them.

Bonds and CDs don't carry much in a way of reward but if you believe the market is risky, you still might want them to be a lion's share of your portfolio.

You then must diversify the rest of your cash to include inflation fighting investments. And stocks, by their very nature fights inflation. We know that stocks go up as earnings go up. And earnings go up as inflation goes up. So, in a way, the system works.

Choose a few good consumer stocks that pay a dividend. This will help you build a conservative portfolio. Choose three. Don't dump ten thousands of dollars into each at one price point or point in time. Remember its not the investment but the strategy we are building that will help us position ourselves against an unknown and preceived highly valued market.

Coke would be a good example - Sure a 10 year chart looks downright ghastly. And its overvalued surely; selling at 29 times earnings. But how overvalued do you believe it is? Do you believe it will sell lower and how much lower? Do you believe it will ever sell higher and how much higher?

If you believe it will sell much lower - but who can be sure. Buy only small amount with the goal of increasing the investment if it drops. Even at today's price of 50 its yielding 1.7%. But a promise of long-term growth is attached unlike what we find with CDs. Earlier in the last 52 weeks Coke was much lower with a dividend yield of nearly 3%.

By choosing three similar companies you can slowly build positions, until, yes finally, perhaps 10 years into the future you will find that your cost basis is much lower than the present price by a margin that has beaten inflation and alternate CD and bond investments over the same period.

If you have more time to spend, go to the library and look at those companies listed in Value Line. You will find many excellent companies, paying dividends that are likely to be somewhat undervalued. Let's look at Sara Lee. PE 14, yield 3.60%. Could these similar but different consumer stocks help provide some conservative inflation fighting protection to your portfolio? Average in slowly to these two and find one more. Or choose three of your own choosing. Remember these are just examples to consider as part of a growth strategy.

Don't rule out using the same principles with some small cap ideas and riskier momentum stocks whose business prospects look interesting. But with increased risk, decrease your investment allotment to these categories. Average in slowly. Time and market conditions will allow you to lower your cost basis regardless of your investment choices.

Today, the market looks overvalued, tomorrow it might crash. Twenty years from now a slow steady program of regularly investing over a number of diversified stocks and including CDs and bonds will allow you to reach your goals. I would once again focus on conservative strategies more than conservative investments.


Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.