Can You Get Rich With CDs?

[chris2008]

When I started saving in a systematic way I decided to split our monthly invenstments into 1/3 stocks or funds and 2/3 government or other secured bonds.
By this basic split I would limit our losses to a tolerable volume even in the worst case.
It also fits to my buy and hold mentality.
We still sleep well.
In total we do not have one million, but we are fine with a paid off house and 2 pensions on the way.

 

[ziggy29]

Why not consider Fixed Deferred Annunities that are paying ~5,0% for 5 yr. contract? You can ladder these as well (3-5-7 yr contracts if you desire)

As much as annuities are bashed here in general (usually for good reason because we're talking about high fee products sold by folks who don't care that they aren't appropriate for their clients), some of these types of fixed annuities aren't a bad option at all for a portion of one's conservative retirement savings. That's especially true for people who already max out all other available retirement plans and want more tax deferral, assuming you're using a product with good rates, financial stability and no fees. The primary concern, of course, is the lack of FDIC-type insurance for them, so it's critical to use a rock-solid insurer.

Someone with $20K or more can get 5.00% for five years and 5.50% for ten years at USAA right now, tax deferred, assuming they are eligible (with slightly higher yields for amounts over $100,000). Some long (insured) CDs in an IRA would likely be a better option, assuming one can find competitive yields.

 

[Independent]

I got to $1 million (just barely) with hardly any equities. As Bogle says, the most important thing is how much you save, not where you put it.

My company's thrift/401k plan didn't offer an equity option of any type until 1994. At that point, I thought that P/E ratios were too high to justify stocks, so I stayed in the fixed account. I was always concerned about inflation. I moved the taxable money into I-bonds when I could, and the tax deferred into TIPS when I could.

We've have had a little in a CD ladder. One catch is that the best rates are often on the "odd" maturities. The 25 month CD will be a lot better than the 24 month. That makes it a little more awkward to build the perfect ladder when x% always rolls over in March and September (or whatever months you choose).

 

[FinanceDude]

CD's won't MAKE you rich, they will KEEP you rich for a couple years.......

 

[haha]

CD's won't MAKE you rich, they will KEEP you rich for a couple years.......

The thing to keep in mind about CDs is that you lend your money to a bank, which which pays you an interest rate which allows the bank to lend to someone else who pays an interest rate which allows them to pursue some business activity which enables them to make a profit.

So the CD holder's role is the base, and the safest. But if it were also the most remunerative over time capitalism would disapper.

Ha

 

[Fastfade]

As much as annuities are bashed here in general (usually for good reason because we're talking about "highproducts sold by folks who don't care that they aren't appropriate for their clients), some of these types of fixed annuities aren't a bad option at all for a portion of one's conservative retirement savings. That's especially true for people who already max out all other available retirement plans and want more tax deferral, assuming you're using a product with good rates, financial stability and no fees. The primary concern, of course, is the lack of FDIC-type insurance for them, so it's critical to use a rock-solid insurer.

Someone with $20K or more can get 5.00% for five years and 5.50% for ten years at USAA right now, tax deferred, assuming they are eligible (with slightly higher yields for amounts over $100,000). Some long (insured) CDs in an IRA would likely be a better option, assuming one can find competitive yields.

I'm not sure what "high fees" you're speaking of. My Fixed deferred annunities are locked in a 5.3 % with no other fees that I'm aware of (other than early withdrawal fees you have also under CDs). Midland National is offering 5.2% on fixed annunities (5 yr contract). The 5-yr CD in see are not paying as well & they're taxable annually)

The OP expressed a desire not to again lose $$ over the next 10 years like he has experienced and was asking about CDs. CDs are taxable each year whereas Fixed deferred annunity contracts are not. No, they're not FDIC insured, but neither are equities/hedge funds and the like.

Staying in equities/Index Funds/ETFs/etc. hoping for a 8-10% return over the next 10 yrs. is an obvious option but it's not FDIC insured nor does anyone know how long the current recession is going to end or how long to the next crisis (financial or otherwise).

And I agree with Independent's post..."As Bogle says, the most important thing is how much you save, not where you put it."

 

[ziggy29]

I'm not sure what "high fees" you're speaking of. My Fixed deferred annunities are locked in a 5.3 % with no other fees that I'm aware of (other than early withdrawal fees you have also under CDs). Midland National is offering 5.2% on fixed annunities (5 yr contract). The 5-yr CD in see are not paying as well & they're taxable annually)

I'm talking about the kind of fees that come with annuities pushed by salescritters that come with high commissions. The good news is that there are a growing number of these fixed annuities available now -- but there aren't any sales fees so you won't hear insurance salespeople pushing them.

 

[Dawg52]

CD's won't MAKE you rich, they will KEEP you rich for a couple years.......

And stocks can make you less than rich in a couple of months or less.

 

[summer2007]

Dawg54

That is hilarious!

I started a 401k last year and I lost about 40% of my money that I worked so hard to earn...by investing it in a retirement fund that is mostly stocks.

Jim

 

[Dawg52]

Dawg54

That is hilarious!

I started a 401k last year and I lost about 40% of my money that I worked so hard to earn...by investing it in a retirement fund that is mostly stocks.

Jim

My med's keep a smile on my face.

 

[unclemick]

Well - at age 65 I suppose CD's are one way help one sleep/ avoid over medication heh heh heh but you know me - just gotta say it:

Pssst - Wellesley! SEC yield about 5.43% as of Friday on the Vanguard website.

heh heh heh - Having seen a few minor market fluctuations since 1966 including the latest little unpleasantness The Norwegian Widow keeps her SEC yield at 3% or better even in good times. You know like those plastic D Fense signs they have in the stands. Sooo - Steelers or Cardinals? Hmmmm ?

 

[JOHNNIE36]

Interesting reading as I am strictly a CD investor. Got hurt a couple times in the market and vowed never to return. Also, too old now and out of the earning stream. I could never replace lost money in the market so I stay away. Ref CD's--when I'm shopping for a CD I always see these offers from obscure institutions such as Miliminum Bank and other "off shore" banks. Is anyone familiar with these guys?
Most of those say "FDIC insured" but I'm not convinced. I'm way too conservative to just buy into that stuff.

 

[Fastfade]

I'm talking about the kind of fees that come with annuities pushed by salescritters that come with high commissions. The good news is that there are a growing number of these fixed annuities available now -- but there aren't any sales fees so you won't hear insurance salespeople pushing them.

That's hardly a reason to "bash" fixed annunities when there a so many good insurers to pick from. There's lots of scumbags/salescritters out there pushing equities of one kind or another but that's no reason to steer people away from them. Lots of folks bash one investment or another "usually for good reason" but too often it's more out of a bad personal experience rather than sound investment principles.

 

[ziggy29]

That's hardly a reason to "bash" fixed annunities when there a so many good insurers to pick from.

Do you normally try to argue with people who are agreeing with you?

I'll try this one more time.

The *perception* of annuities is that they are inefficient, have high fees (and corresponding commissions), and are aggressively sold to people for whom they aren't too appropriate. And for a long time, that was mostly true. Old perceptions die hard.

I was trying to build on your example to show that these perceptions don't NEED to be reality, and yet you keep responding as if I'm perpetuating that perception. I'm agreeing that it doesn't have to be reality with a good fixed annuity purchased for the right financial circumstances, and you don't seem to get that. I'm just saying that some kinds of annuities are definitely worth looking at for the right people, and that some people might want to look past their preconceived notions.

Color me puzzled and confused. I thought my point was blatantly obvious.

 

[Gardnr]

Do you normally try to argue with people who are agreeing with you?

! I was thinking the same thing.

 

[haha]

The title of this thread is "Can you get rich with CDs?" The answer, obviously, is no.

If the question is recast as "Can you survive with CDs, given plenty of money, or one or two or more COLA pensions, and/or an age that would not be commonly thought of as early retired, the answer is just as clearly "yes".

Ha

 

[Fastfade]

Do you normally try to argue with people who are agreeing with you?

I'll try this one more time.

The *perception* of annuities is that they are inefficient, have high fees (and corresponding commissions), and are aggressively sold to people for whom they aren't too appropriate. And for a long time, that was mostly true. Old perceptions die hard.

I was trying to build on your example to show that these perceptions don't NEED to be reality, and yet you keep responding as if I'm perpetuating that perception. I'm agreeing that it doesn't have to be reality with a good fixed annuity purchased for the right financial circumstances, and you don't seem to get that. I'm just saying that some kinds of annuities are definitely worth looking at for the right people, and that some people might want to look past their preconceived notions.

Color me puzzled and confused. I thought my point was blatantly obvious.

It was not my intent to affront or to “argue” with Ziggy29. I was trying to take issue with those who “here” bash fixed annuities for perhaps reasons that might not be applicable or clear to the OP.
If Ziggy29 felt I was intentionally confronting his knowledge/opinions, I sincerely apologize to you.

 

[wolf]

"OAG". I agree with you. My retirement plan was very similar. Currently, I also search for the best CD rates. Penfed, USAA, Capital 1 (poor CS), etc.

In the past, Penfed had some 7% CD's. Currently I have their 6 1/4 CD's. 5yr and 7 yr terms.

I also have funds in my local Credit union (former employer), I always ask if they give customer's with large balances better CD rates.

One day I was surprised when they said they would match other Credit Unions rates up to 1% over their current rates. (they have recently change it to 1/2%). Always ask!!!!!

Since retiring, at 55, I've kept about 18% in stock. The balance in CD's. 7 years later, We are still in pretty good shape.

Much more to say, Don't want to bore anyone.

But one last thought, ALL of the highly paid experts, who promote equity, warn us about inflation, were all wrong! The worst stock market drop in 50 years, and they all missed the call.

If the experts cannot predict or make the right call, why do so many people base their investments on their advice?

Sometime's it best to use common sense, don't be greedy, and sometimes dont't follow the crowd.

 

[Spanky]

My question is: I like the security of CDs despite the modest returns and I'm wondering if anyone has accumulated a sizeable portfolio ($1 million+) by just investing with CDs over the course of their lives?

No - the return of CDs will not provide enough income to support our expenses. However, if one can live off the income from CDs forever, the answer is yes.

 

[deepc]

However, if one can live off the income from CDs forever, the answer is yes.

Perhaps, but the principal is usable too. In simple terms, one could draw down $360k in CDs over thirty years at $1k a month. Obviously inflation and interest earned both play a role in the amount you can realistically withdraw, but to not use the principal means leaving cash on the table at the end.

Granted, the time frame is an unknown, but one can reasonably use a plan that includes other investment strategies (pensions, Social Security) to ensure that running out of CD cash at 90 years old will not be the cause of a pet food diet. I don't think my need/desire for cash will be as great 40 years hence, and while the CDs may not last the term, not only will other sources of income pick up the slack but many expenses will cease.

CDs are for risk averse investors who can stomach NOT making a ton of money when it's good, and who can't stomach losing a ton (even on paper) when it's ugly.

 

[FANOFJESUS]

Can You Get Rich With CDs? You could over time if you were a great saver. The thing is you don't go 40 percent in the negitive in one year.

 

[Bimmerbill]

My dads retirement savings thru his work were all in CDs. Had about 400K when he passed back in 2004. Wasn't even drawing any of the money. Both he and my mom were tightwads and always were super conservative with money.

 

[Koolau]

This discussion has surprised the heck out of me. I thought I was the only one on the board who was so risk averse as to to stay mainly in cash equivalents for most of my saving career (mostly GICs, AKA Stable Value funds in 401(k))

Having said that, my best move and the reason I could retire is that I left money in Megacorp's stock in my 401(k) and watched it explode (no, that's a good thing!). Sold most of it before bottom fell out in 2000s. Sooooooo Did all the "wrong" things for (probably) all the wrong reasons and still came out pretty well. Still, if I'd stayed in all equities back in 74/75 instead of going to cash (with MY 401(k) money, that is), I would, indeed, be rich now instead of just "very comfortable" - whatever that means.

I do worry constantly about inflation, so I'm still convincing myself I need to get more into equities if I really do plan to live another 30 years.

I need to get off the pot (no, the other kind) and get going on my "plan". This discussion has NOT helped!!! But thanks for letting me know I'm not alone in staying mostly in cash.

 

[haha]

This discussion has surprised the heck out of me. I thought I was the only one on the board who was so risk averse as to to stay mainly in cash equivalents for most of my saving career (mostly GICs, AKA Stable Value funds in 401(k))

Check again when the market has doubled. Won't be many risk averse people around then, instead we'll all be deriding those whose equity allocation seems too small.

Ha

 

[Koolau]

Check again when the market has doubled. Won't be many risk averse people around then, instead we'll all be deriding those whose equity allocation seems too small.

Ha

I hope you're right, Ha. I hope I'm one of those who has "seen the light" by then. I've missed a lot of possible gains over the years by being so risk averse. Of course, I've never suffered much in the way of losses either. You pays yer money and takes yer choice, I suppose. I know there is a balance and I hope I can find the best balance for me. I'm workin' on it!