Financial Q&A: Looking for safety? No matter where you go, risk follows.

Submit your questions to Steve Dinnen at: money@csmonitor.com

from the January 12, 2009 edition

Q: I'm a first-time investor and would like to know if there are any safe investments. How do I find them?

M.M.V., via e-mail

A: It really is difficult to define the word "safe" when talking about investments. That's because, even in less volatile times, every investment carries some degree of risk, says Dwain Tataryn, a certified financial planner and certified public accountant in Elgin, Ill.

One risk is inflation. While an investment in bank Certificates of Deposit may be considered safe from a return of principal standpoint, there is the risk that inflation could be higher than the return. (Remember the 1970s?) Other risks Mr. Tataryn mentions include interest-rate risk, where the investment value could rise or fall based on an increase or decrease in interest rates. There's also liquidity risk, which occurs when it isn't possible to sell an asset quickly without conceding on the desired price. And of course, there's market risk due to fluctuations in the overall market or economy.

Before investing, Tataryn recommends that you determine the time horizon for your investment. Are the funds needed in the short term, as in the next few years? Or is this an investment for the long haul, such as retirement that could be many years away?

For short-term needs, Tataryn would look to options with a low risk of loss of principal, such as a CD. If your focus is long term, he would advise you to create a diversified portfolio based on how much risk you're willing to shoulder. It would have various asset categories, including stocks, bonds, and mutual funds.

Q: My retirement portfolio is in mutual funds and has taken a hit. At age 63, I'm quickly reaching a point where monthly income from these investments will be important. To this end, my adviser is suggesting that I transfer what I have to a variable annuity. I have been in a variable annuity before and did not realize any substantial investment gains. Now, I'm not sure of the best way to go. My gut suggests I wait for a significant recovery of my current investments before looking at anything else.

D.P., via e-mail

A: That growl in your stomach may be a leftover from your last run-in with a variable annuity.

With any annuity, you have to find value and peace of mind, says Rita Cheng, a certified financial adviser in Bethesda, Md. If you decide to shift to an annuity, look for one that has a short surrender schedule and automatic rebalancing as a way to stay invested.

But before you bail out of the mutual fund, take a look at its performance relative to that of its competitors, Ms. Cheng says. Virtually every type of stock investment has been hammered in recent months. So see whether it's performed better or worse than similar investments. "Remember," says Cheng, "it is not about trying to time the market, but the time one is invested in the market."