Expert: Paul Henneman - 11/5/2006

Question
Hi I am looking for a reasonably safe investment term deposit which generates at least 10%p.a with minimal risk.
What is your opinion on a fund to use or any other type of residual investment that generates this kind of return?
Thanks  

Answer
Thank you for your question!
  I think that the best option for you may be an index mutual fund. The most stable and appropriate index would be the S&P500, and Vanguard has a good index fund. I believe that the ticker symbol is VFINX.
  I think that it does depend a great deal upon what you consider 'reasonably safe'. It is a very definite rule in finance that the higher the return, the more risk you must take. So for a desired 10% return, you must take on some risk. An index fund such as the one I mention above will do well some years, and not so well other years. It is possible that in some years you will actually lose money. However, in the long term, you should average a good return of at least what you are looking for.
  Because of this, your time horizon is important. If you plan on investing only for a few years, this type of investment is more risky. A down year or two would be terrible for your investment. However, if you plan on leaving your investment alone for 10, 20, or more years, then you are almost assured of doing well.
  If you are looking for a perfectly safe investment, CD's are a good investment. But even the highest yield CD's available at places such as www.NetBank.com will yield you 5% maximum yearly returns, about half of what you are looking for. So you do need to take one some risk. Again this risk is higher in the short term than the long term.

I hope this helps! Please do not hesitate to follow up with me if I can be of any further service!

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com