| Hi Taylor:
What are your thoughts on buying CDs? I know a couple of people who
recommend them, but one of them is my father and I sometimes wonder
if his strategies are of this time. What do you think? - Stan
Hi Stan: Someday my kids will be saying the same things about
my advice. Your father isn't entirely off base, though I will say
CDs aren't my top choice for earning returns. Their usefulness somewhat
depends on the other assets you have and what you're looking to do
with your money.
Certificates of deposit are really safe, so they're worth looking
at if the goal is to diversify your portfolio with low-risk holdings.
They're usually insured up to $250,000 and you don't have to deal
with big market fluctuations or rate changes since the investment
is relatively short term.
If we're talking about making more money over time, I think you're
better off putting your funds into a solid, dividend-paying stock.
If you stack the two up next to each other, the dividends will likely
equal or exceed the interest payments from a CD, and your stock value
goes up as the company's value increases. As long as you don't panic
and let the shares ride, you'll have a better shot of beating inflation
in the market. Of course, stock prices go up and down with market
volatility. Your CDs are on firmer ground and should also edge out
inflation as long as you're willing to go with terms upwards of three
years. If you don't have much in the way of liquidity, CDs become
a little scarier once you start thinking about what terms will get
you the best rate. CDs usually give you a better rate than you'll
get with a standard savings account, but you won't have access to
that money for a stretch.
Some people combat the liquidity problem by "laddering" their CDs-buying
a one-year term, a two-year term, a three-year term, and on through
five years. As each deposit matures, the money then gets rolled into
a new five-year CD. Eventually, you have multiple longer-term CDs
with one maturing each year. It's a bit of a process, but it does
help with accessibility. As long as you have enough available cash,
there's nothing wrong with putting some of it into a CD at a good
While CDs may not be the best cash investing option for some people,
it may work well for others. They're not a terrible route by any means!
It's all about finding what fits into your financial plan, making
sure you're 100% comfortable with your investment opportunities, and
understanding where you're putting your money. Happy investing!
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.