Low Risk Strategy
This strategy is for people who have a low tolerance for risk. You have a low risk tolerance if you might need to spend or borrow against part of your retirement plan balance, any time within the next 0 - 5 years. If that is true for you, then you can't safely invest in common stocks, because the only thing that makes stocks safe is the passage of a long period of time.
Some people do have that long time period to commit to common stocks, but they lack the other vital ingredient of success: patience. The best stocks and the best mutual funds in the world will sometimes fall tremendously in value, and they can stay down for a very worrisome period of time: years, possibly. To succeed with common stock investing, you must have the patience and discipline to ignore such "losses", and stick with your strategy. If you know yourself well enough to suspect that you would be too worried by such losses to stick with your investments, then you should use a low-risk investment option like this one.
Our current investments are approximately as follows. These are only general guidelines for us, rather than a formula to be precisely matched. Remember that we may change this mix as conditions change, but we'll never use common stock funds in this strategy.
|50%||Federated Capital Preservation Fund|
|This fund is a collection of "guaranteed investment contracts", which are debt instruments issued by insurance companies. Most of them have maturities of 2 to 5 years, and mostly they change their interest rates once per year.|
|50%||Federated Treasury Obligations Fund|
|This money market fund is a collection of U.S. Treasury debt instruments with very short maturities averaging 5 to 90 days.|
The return rate on the Capital Preservation Fund moves up or down slowly, as interest rates change in the economy. The Treasury Obligations Fund moves very quickly, as rates change. By combining the two in this way, we're aiming to get the higher returns of the first fund, plus the quicker response to rising rates offered by the second fund.
The past performance figures of the Low Risk Strategy are only useful as illustrations of the relative return rates among Strategies with different risk levels, rather than as guides to future returns.