3 Answers: What is the Best Investment Return, CDs?

Question

Is investing better in the long-term than putting your money in a savings account or CD? I would like to invest some money and would like to know.

Or does the risk of losing your money outweigh the potential for return?

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Jessica G 5 months 3 Answers 79 views 0

Answers ( 3 )

  1. The stock market has a good history of over-performing traditional CD. If you don’t know enough about each stock, you can invest in the indexes like SP 500. They have consistently outperformed CDs or the pale interest rates that the banks gave you and is pretty safe.

  2. My dad was a simple guy who grew up during the Great Depression. Money was hard to come by. A job was something to have, not something to enjoy. Save, mend, reuse, repurpose, wear it out and then use it some more kind of guy.

    Dad grew up poor in the Great Depression. It hit him very hard and he never really recovered. He had no education. He was barely literate. He got a job after WWII working in a dairy. Fifteen years later he got the seniority he needed to bid the job he wanted. He wanted to drive a semi (articulated tractor trailer) for the dairy. It paid more money.

    Dad put all his money into CDs. By the time he died in 1999, he had amassed a tidy nest egg. He wasn’t rich but he and Mom owned their home, paid cash for new cars when they wanted one, never lacked for anything but they were frugal and didn’t want much.

    He told me one time that he couldn’t stand the thought of ever losing money in the stock market. He said he could afford to lose some if it came to that, but he would not be able to sleep at night just knowing that even part of his money was at risk in the stock market. The only thing left for him to fear, he said, was inflation. He feared the kind of inflation Germany had before Hitler came to power. When employers would pay their employees several times during the day because the money was devaluing so fast.

    That hasn’t yet happened in America but that’s what my dad feared. He never had to worry about his CDs. He was so fearful that he refused to put more than $100,000 in any one bank. That was the insurance limit on bank deposits at that time.

    CDs were exactly the right vehicle for my dad. They were and are a bad investment. You lose buying power vs inflation when you own CDs. But Dad slept like a baby every night. What’s that worth? How much risk can you stand? Dad could have had twice as much money if he had been a little less risk averse but he wasn’t. It’s your money. You decide how to invest it in keeping with your risk tolerance.

  3. Inflation risk – when the rate of return earned in any investment is lower than the inflation rate. Even cash under the pillow is exposed to this risk as cash earns 0% returns. Many so called secured and guaranteed fixed return investment falls in this category.
    Liquidity risk – when you cannot liquidate your investment and get your money when you need it.
    Reinvestment risk – when the money you get from one investment cannot be reinvested in something that gives your equal or better rate of return.
    Exchange rate risk – when the currency you hold erodes in value as compared to another country’s currency. This risk is real when your financial goal is in a foreign currency. For example, overseas education costs.
    Interest rate risk – after investing in a fixed return investment, the market interest rate goes up making your investment unattractive.
    Market risk – when the value of your asset erodes due to market conditions beyond your control. Real estate and equity typically falls in this category.
    Systemic risk – something goes badly wrong at the macro level in your own or global economy that affects the value of all assets. Remember Lehman Brothers?
    Business risk – changes in business conditions that affect the value of your investments. Equity typically falls in this category.

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