Sleep well at night with these conservative dividend payers, writes The Motley Fool.
With times as tough as they are, it's more important than ever to make the right decisions about saving for your retirement.
Yet many people are either avoiding shares entirely or picking flashy high-risk shares that could crash and burn at any moment. Unless they change their ways soon, both groups will cause irreversible damage to their financial future.
It's no surprise that after all the problems in the financial markets over the past few years, investors still feel shell-shocked about their investments right now. Looking back to mid 2007, it hardly seemed possible that major stock indexes like the S&P/ASX 200 could lose over half their value within 18 months.
Regardless of warnings about the risks of owning shares, few investors really grasped the possibility until it actually happened.
Now, it seems as though many investors have taken their toys and gone home, dumping their shares and sticking with cash. Meanwhile, others look at the market now and wonder if they shouldn't be greedy and pile in while it's down in the dumps.
Unfortunately, either misstep could lead to financial disaster. The right answer is somewhere in the middle.
This one's too safe
There's nothing wrong with cash right now, especially as savers can earn up to 6% interest, at call.
But what cash savings won't do is help your money grow. So if you're like the vast majority of investors who still need at least some growth in their portfolios, cash won't cut it. You can't afford to give up on shares.
This one's too risky
That said, gambling on the wrong shares isn't the right move either.
Those who were willing to put their entire investment at risk in shares like Pacific Brands Limited (ASX: PBG), Sandfire Resources (ASX: SFR) and Bandanna Energy (ASX: BND) have been richly rewarded since the market bottomed in March 2009.
We're not saying that all of those shares are necessarily bad investments right now. But you're unlikely to see the same performance from them in the future, if for no other reason than that they've already seen such huge gains.
The right play now
That's why more conservative shares might be the right play right now. Despite their recent share price under-performance, blue-chip companies like Telstra (ASX: TLS) and AMP Limited (ASX: AMP) both have above average dividend yields, and may have better medium-term prospects than the market is giving them credit for.
Sure, a conservative approach may not seem exciting right now. It's very, very unlikely that these shares will double or triple in the next year, as some investors saw with riskier shares in the last couple of years. But conversely, you also probably won't lose your shirt if the market starts to fall again.
As tough as things are, though, make sure you take a measured approach to investing. Don't let uncertainty scare you out of the market, but don't let a false sense of security persuade you to take big risks that you can't really afford.