4 Conservative Ways to Lock Away Wealth for the Future

We've been through nine recessions since 1950, so as you're trying to save your money, sometimes you get a nagging feeling to stash it somewhere safe.

Once upon a time, you could conservatively build your wealth by parking cash in a high-interest savings account, but those days are history and banks are now only offering less than 1 percent interest.

It's hard to find inflation-beating returns for portfolios with lower risks than stocks. But we all learned to diversify the hard way after the 2008 financial crisis cost households a whopping $19.2 trillion, according to the U.S. Treasury Department.

The Standard & Poor's 500 index dropped 50 percent, real estate investment trusts fell by nearly 65 percent, high-yield bonds dropped more than 30 percent, and even the average hedge fund index, built to hedge against crashing markets, dove 20 percent, says Richard Marston, professor of finance at the Wharton School.

"The only asset that protected you during the financial crisis was treasury bonds," he says.

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But treasury bonds are currently earning less than 2 percent, and inflation is a little less than 2 percent, so it's a no-win situation in today's market. In his book, "Investing for a Lifetime," Marston found that although a well-diversified, 50-50 stock-bond portfolio of foreign and domestic stocks dropped about 25 percent during the crisis, the portfolio recovered 41 percent by 2015, relative to where it was before the crisis began.

"In other words, sticking to a strategy throughout a really terrible period will leave your wealth intact in the longer run," he says.

Depending on your age and risk tolerance, many experts recommend diversifying a portfolio by investing 75 percent in stocks and 25 percent in more conservative, safer investments. Here are four ideas for the 25 percent of your portfolio.

Bonds. For people in their 30s and 40s, bonds can give peace of mind when the markets misbehave, Marston says. "They know part of the portfolio is going to be relatively immune to anything that happens."

Lower risk by keeping the duration of the bond portfolio below five years, so if there is an increase in interest rates, the bonds will suffer less than those with a duration of 15 to 20 years. Despite financial troubles plaguing places like Puerto Rico and Detroit, Marston says he's still a big fan of the municipal bond market, because they offer investors in a high tax bracket a better return return than corporate bonds of the same grade, plus they have some tax advantages.

Life insurance. One way to protect yourself from market volatility is by investing in dividend-paying, whole life insurance from companies that are owned by the policy owners, says Pamela Yellen, author of the book "The Bank on Yourself Revolution."

For the past 30 years, returns have been about 7 percent for those who hold onto the policy at least 20 years, Yellen says. The drawback is that the money doesn't grow very fast in the first five years, and it isn't for those with unstable income or bad health.

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The companies pay an annual increase each year, Yellen says, depending on a number of factors -- age, health, the premium and when it was opened. And the policies pay a benefit after holder dies.

Before signing on, check to see if you're with the right company by investigating if it has an unbroken track record of paying dividends every year for at least 100 years. Also find out if the company recognizes that you can take a loan when crediting dividends, which allows you to borrow against your equity in the policy and use it to make major purchases, such as a car, a vacation, even finance a college education or business expansion.

"Even if you took out $35,000 to fund college, the policy continues to grow as if you still had the $35,000 in the policy," Yellen says. "Out of 450 other strategies I investigated, I can't find any others that have that benefit."

Annuities. When a client has finished paying down a large debt, continue putting the extra money toward investments, says Michael Fein, president of CIC Wealth in Owings Mills, Maryland. Annuities are attractive alternatives to the stock market because they aren't affected by market crashes, he says.

"Look for low-cost annuities that have some kind of guaranteed provision, regardless of what happens in the market," he says.

Exchange-traded funds. Diversification is key with investments -- and that holds true to ETFs as well. ETFs are a basket of stocks that can do anything from mirror the S&P 500 to investing on a specific subject, such as cybersecurity.

The narrower the ETF, of course, the greater the volatility and risk. "I generally advocate investing in a range of equities and fixed income securities," says Matt Tucker, head of US iShares fixed income strategy at BlackRock, an investment management and advisory firm.

"And on the fixed income side, we see lot of people start with a broad core fund like a diversified investment grade fund, benchmarked to something like the Barclays aggregate, the most commonly followed benchmark," he says.

One such fund is the iShares Core US Aggregate Bond ETF (ticker: AGG). "It's incredibly diversified with over 4,000 securities; it lets people get a nice low-cost foundation for their fixed income exposure."

Depending on their risk tolerance, investors can then add other asset classes or investments. "So more conservative investors can blend some treasury funds in that initial fund, or if they want to add more income, they could add something like high-yield securities or preferred stock or something else which pays more income," Tucker says.

[See: The 10 Best ETFs for Value Investors.]

More conservative funds have investment grades of typically triple B or above, found on the provider's website. Before you invest, make sure you understand the fees and transaction costs, Tucker says.

Christine Giordano is a freelance business journalist with a passion to help consumers make educated decisions. Also a columnist for Newsday, you can follow her on Twitter @chrisgiordano.