This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Is it Safe? A Hint of Risk Can Boost Returns

BOSTON ( TheStreet) -- "Is it safe?"

Setting aside memories of that line amid the dental torture of the 1976 movie Marathon Man, that same question is being asked more and more by investors as they plan where to put their money -- if anywhere at all.

Investors seeking safety may consider bets on big companies that aren't going anywhere.

The hazard of going defensive and keeping your money in "safe" investments is that you typically lose upside in the pursuit of security.

Risk is often paired with reward, so does that mean "yield" and "safe" rarely intersect?

Mike McGervey, president and founder of McGervey Wealth Management in North Canton, Ohio, challenges such black-and-white thinking.

"Typically cash in a money market earns next to nothing," he says. "Sometimes I will have a client ask, 'What's our cash going to earn when it is on the sidelines?' and I'll stop and tell them they are missing the point. If we are preventing a 30% decline in your portfolio then maybe, in effect, your cash has earned you 30% because it kept you out of the fire."

For those not willing to merely ride out market tumult in CDs and money markets, stomaching just a little more volatility and surrendering some liquidity can lead to higher returns that, at the very least, keep pace with inflation.

If you can't decide between stocks or bonds, a hybrid of sorts can be found in preferred stocks (as opposed to the common stock most invest with). These share have built-in protections that can help mitigate risk. If a company is pushed out of existence by bankruptcy, those with preferred shares are right behind bondholders and ahead of common stock investors in recouping their share of the divvied-up assets.

Also, even though a company can suspend dividend payments, those with preferred stock must be recouped for what they lost before any dividend is restored or paid to holders of common stock.

A byproduct of the low interest rate environment is that even companies that are sitting on massive cash reserves are borrowing. This may make investing in high-grade corporate bonds a suitable alternative to Treasurys, especially after the S&P downgrade of U.S. debt.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs