In my travels I get this question a LOT: What is the safest place to invest money? Surprisingly you may already know the answer to that question. We all want a safe place to invest money, but the truth is that no such place exists. I’ll explain further.
First Let’s look at the most common ways you can invest before we get to the safest place to invest money. Typically we tend to see the stock market, real estate, CDs, savings accounts, and the mattress as the safest places to invest money. But how safe are they really?
The stock market is a never ending ebb and flow of ups and downs. A roller coaster of potential. The reason the stock market may not be the safest place to invest money is because the market is literally a place to buy symbolic pieces of papers that can represent anything from goods to currency to shares in a company. Anything that those pieces of paper represent can suffer from incidents that will lower their value. For example, a company goes belly up and all your shares drop in value. You buy several ‘shares’ of potatoes just when some mad scientist discovers how to grow potatoes overnight with a single drop of water. And so on. Most of these risks are typically rather minimal and vary depending on the type market investment you make. But the point is that the market is not the safest place to invest money because it will ALWAYS have the risk of lowering the value of your money due to potentially unforeseen circumstance.
What about real estate? This happens to be my personal favorite. The upside of real estate compared to the risk is amazing. However, is real estate the safest place to invest money? No, of course not. Why? Because real estate is unpredictable and fraught with similar unforeseen risks. You could buy a house and discover later that it was built on landfill and watch as your property value falls to almost nothing before your very eyes. Or it could burn to the ground or collapse in on itself from an earthquake. Or a local gang could move in and turn your rental into a meth house. All of these could lower your investment faster than you can believe. All of these unpredictabilities make real estate definitely not appear to be the safest place to invest money.
Well what about CDs? Certificates of Deposit are often thought to be one of the safest places to invest money. The reason being that CDs are really just like giving a loan to a bank. Typically we all think of banks as being very stable. But the truth is that banks are just like businesses. And like businesses, banks can go belly up. This means that should the bank collapse while you have your cash buried in a CD you can kiss your money, let alone the 3% ROI, goodbye. Though CDs can be insured which makes them about the safest place to invest money. But we aren’t completely done yet.
What about savings accounts? Savings accounts are just like CDs in that you are basically just handing your money to a bank with a promise that the account will not fall below a certain level. If the bank goes away, so does your money. The only reason a savings account is a bit safer is because the account is rather liquid.
This leaves us with storing your money under the mattress. The problem here is that you’re susceptible to theft, fire, etc. But what is more, is that now inflation slowly eats away your stash. With an average inflation of 3% your money will reduce in buying power by 3% every year. Meaning in 33 years your money will be worthless. That’s almost guaranteed.
What does all this mean? This means that there is no safest place to invest money. Every avenue carries with it an inherent risk. What this risk means to you is something only you can decide. Is watching your money erode at 3% a year every year less risky to you than letting a bank borrow it? Is the threat of natural disaster too great to risk investing your money in real estate and watching it double every 5 years? Only you can answer these questions.
So what is the safest place to invest money? That question is something you will have to answer. And so, I ask YOU, what IS the safest place to invest money, for YOU?