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The quickest path to disappointment in managing a portfolio is to search for safe investments.

Bonds? Not really. While bonds issued by financially solid governments and corporations present little or no real default risk, they can fall in price. The past 12 months have shown this, and the next 12 months could very well provide a sequel.

Guaranteed investment certificates? Zero risk of loss if you stay within deposit insurance limits, but real returns from these products are running at roughly minus 2 per cent to minus 3 per cent or so, thanks to resurging inflation.

Dividend stocks? It’s pure fantasy to call them safe. Prices can fall and dividend payments can be reduced or suspended, though this is rare among blue-chip companies.

Preferred shares? They used to be called widow and orphan stocks for their stable delivery of dividends. Now, look again. Pref shares have plunged in the past two bear markets and have been unpredictable in the interim, even as most pay their dividends right on schedule.

High-interest savings accounts? Like GICs, but worse.

This look at the greatest hits of supposedly safe investing is brought to you on behalf of a reader who recently sold some property. “I want to invest the [proceeds] in a safe investment and use the interest for living expenses,” this reader wrote. “I am old. What would you invest in if you were already retired?”

GICs that pay interest monthly score well on safety, but those negative real returns will be problematic until inflation eases. Dividend stocks score well on yield, especially on an after-tax basis (assuming they’re held in a non-registered account), but they’ll be caught up in the next stock market decline.

A sort of hybrid approach is the Vanguard Retirement Income ETF Portfolio (VRIF-T), an exchange-traded fund that pays monthly interest yielding close to 4 per cent on an annualized basis. It holds a portfolio that is roughly split between stocks and bonds. In no way is VRIF safe, as defined by minimal or zero risk of losing money. What it does offer is a conservative portfolio producing monthly cash that looks only modestly tax-efficient in a non-registered account, thanks to large helpings of bonds and dividends paid by companies outside Canada. These dividends would not be eligible for the dividend tax credit.

If I was retired, I might go with dividend stocks or ETFs if generating income was more of a priority than capital preservation. Flip those goals and monthly pay GICs would be a strong contender.

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