Michael Gebhard, first vice president of wealth management for Janney Montgomery Scott, looks over stock prices Thursday in his Linwood office. Gebhard does most of his business in municipal bonds. Michael Ein

You save money from your paycheck every week, but it’s getting  only 1 percent interest in the bank — if you’re lucky. Your IRA and 401(k) did well in the last year or so, but pundits say the stock market might crash again.

So what do you do to earn a decent rate of return on your hard-saved cash, without the risk of going broke in the next downturn?

There are many other investment options available, each with its own risks and rewards.

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The best thing to do is to sit down with a qualified financial planner, said Deb Figart, director of the Center for Economic and Financial Literacy at Richard Stockton College of New Jersey. A good adviser helps clients assess what they own, and look at factors such as their age and how much stomach they have for risk.

Generally speaking, people closer to retirement should be more conservative, to avoid losing a large chunk of their portfolio if the market goes down again, Figart said. Those who plan to be in the work force for a few more decades have time to recover from a crash.

Aside from keeping your money in the bank, there are three major types of investments, said Michael Busler, a professor of finance at Stockton College:

  • Debt instruments, or bonds, with which a corporation, government or municipality borrows investors’ money.
  • Equities, or stocks, where you own part of a company. These can also be purchased in mutual funds, where investors pool their money and pay someone to manage it.
  • Real assets, such as real estate.

Bonds are more conservative, and offer less risk and a lower rate of return. Stocks can be riskier, and we all know real estate has been anything but a sure bet in the past few years.

If investing in bonds, Busler said, he would stick to short-term instruments, with maturities about six months to a year.

“The reason is interest rates are likely to rise, possibly significantly, in the not-too-distant future,” Busler said.

When interest rates go up, the value of existing bonds goes down. If investors can get a higher return from newly issued bonds, they’re not willing to pay as much for older bonds that pay less.

Safe and sound

Before investing any money, it is best to speak with a financial adviser about your own situation, said Charles Weeks, a certified financial planner with Barrister Wealth Management in Galloway Township. A lot of your decision will depend on how much risk you’re willing to take, and when you’ll need access to your money.

It is best to work with a planner who charges by the hour for his or her advice or who manages your assets in exchange for a small percentage of their value, Weeks said.

For guaranteed safety, a bank is the only answer, and your deposits up to $250,000 are insured by the Federal Deposit Insurance Corp., Weeks said. You can get a slightly higher interest rate with an online bank and still be insured.

Treasury bonds are “considered risk-free investments because no one thinks the government will default,” Weeks said. A 10-year note is paying nearly 3 percent, but if you have to sell the bond before it matures, you’ll lose money when interest rates go up. If you keep the bond until maturity, you get your entire principal back.

Corporate and municipal bonds are the next step up the ladder, and municipals have the advantage of the income being free from federal, and often state, income taxes, Weeks said. These can be bought individually or in mutual funds, but again, you risk losing money if you don’t keep the bond until maturity. People with at least $100,000 to invest might do better with well-vetted individual bonds instead of a mutual fund.

Michael Gebhard, first vice president of wealth management for Janney Montgomery Scott in Linwood, said he does most of his business in municipal bonds. Despite talk in the financial media, “our feeling is we’re not going to see massive defaults in municipalities,” he said, adding that he was expressing his own opinions, not speaking for the company.

But interest rates are still low, unless you’re willing to tie up your money for a long time, Gebhard said. Bonds in the 2-to-5-year range offer only about 1.5 percent to 2 percent interest. Investors can get about 5 percent interest on 25- to 30-year bonds.

Some senior citizens buy long-term bonds, even though it’s likely the investment will outlive them, Gebhard said. They need the income, and 5 percent tax-free equals about an 8.5 percent taxable return, depending on what tax bracket they’re in.

“People who are on a fixed income, living off what they have, (are finding) it’s very hard to get a good return these days,” Gebhard said.

Alternate routes

Annuities, especially those with fixed rates, are another way to get slightly more interest for your money, said Richard T. Gerber, an insurance agent with American National in Linwood.

An annuity is a five-year or longer contract with an insurance company that pays an agreed-upon level of interest, Gerber said.

Most of his clients are age 55 or older, and can take their interest payments as a direct-deposit into their bank account every quarter, Gerber said.

“They know what they have, they worked hard to accumulate it, and they don’t want to lose it,” he said.

Some people “ladder” their annuities, or buy them for staggered time periods so they can benefit from higher interest rates as they go up, Gerber said.

“You don’t put all your money in it,” Gerber said. “It’s a good quality part of a whole pie.”

With the U.S. dollar losing value, some people are investing in foreign banks, said Eric Reich, a certified financial planner with Fitzpatrick, Bongiovanni & Kelly in the Marmora section of Upper Township.

Australian banks, offering interest rates of about 3.5 percent, are popular with some clients, Reich said. The accounts are bought through an American bank, and the principal is FDIC insured.

“Their economy is much better than ours. They’ve raised their interest rates a few times,” Reich said. “What’s made them attractive to some people is if the (U.S.) dollar is doing so poorly, they not only get a better rate, but they get a gain in the currency when it’s repatriated.”

But the returns won’t be as good if the U.S. dollar gets stronger, Reich said.

Reich said he has seen alternative investments — such as timber land and commodities mutual funds — perform better than traditional investment vehicles in recent years. Hedge funds have gotten a bad rap, but can be good for wealthy people who won’t need the money for emergency expenses.

His firm has been working with alternative investments for about 15 years, and their clients lost less than other investors during the 2008 market crash, Reich said.

While most FBK clients are wealthy, no one is turned away, Reich said. Many prefer to have the firm manage their money in exchange for a percentage of the value. But some good investments are sold on a commission basis only, and planners are upfront with clients that they get paid for selling them.

Whatever investment vehicle you choose, it is important to evaluate it carefully before handing over your money, Busler said. And the age-old rule still holds true.

“Generally, in finance, risk and return are proportionate,” Busler said. “If you want to earn high returns, you have to take a risk for it. If you don’t want to take a risk, you have to accept smaller returns.”

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