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CDs Investing Beating S&P Investing, Since 1994

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From 1994 to 2008, investing in certificates of deposit has beaten investing in the S&P 500, including dividends, according to data collected by The Big Picture. Check out this chart:
CDs vs S&P500, 1994-2008

Does this mean you should be investing in CDs? Not based on this chart alone. I think certificates of deposit make sense as the safe part of your broader investment and retirement plan.

Here are some things to ponder:

  • Life is never about either or. Never put all your eggs in one basket, whether it says CDs on it or S&P 500. Life isn’t about hitting home runs or striking out, you want to get a few singles, doubles, and triples in there if you want to make a career out of it. So, when you look at these X vs. Y, remember that your decision is never one or the other, but a mix of both.
  • Past returns are not indicative of future results. Remember that the Fed has been pumping an unprecedented amount liquidity into the market and the federal government is spending like crazy trying to jump-start the economy. That will have a significant impact on inflation and inflation is the one huge enemy of fixed income, which includes CDs.
  • I should invest in the S&P now now now! If you look at the chart, you’ll see that the S&P 500 has actually beaten CD’s almost every year since 1994 except for 2002, after the dot com crash. That should be proof that you should be invested in the S&P 500 now because it’ll beat CDs again… soon!
  • Statistics can lie. Unfortunately, you can mold statistics to whatever you want them to show. Why only go back to 1994 if you wanted to prove CDs > S&P 500, always? Because it doesn’t. Of course, The Big Picture wasn’t trying to say that CDs are better than the S&P 500, they were merely illustrated an interesting and unexpected statistic.

All in all, I think it’s very eye opening to see how far the S&P has fallen.

{ 14 comments, please add your thoughts now! }

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14 Responses to “CDs Investing Beating S&P Investing, Since 1994”

  1. tom says:

    Stats like this are dangerous. Whether or not “the Big Picture” was trying to show a surprising statistic, the financially uneducated public might use this as a reason to bail from the market and jump into CD’s.

  2. I think it’s a good time to invest in Standard & Poor.

  3. ian says:

    When the title includes ‘…Since 1994′ it is implied that CDs have continued to do better for the last 14 years. While actually, CDs have done worse (far worse at times) for all but two years on the graph. So, unless you withdrew from the S&P in 2002 or 2008 (or this year), you made more money in your stocks than you did in the CD.
    You mention this in your third bullet point but the title says almost the opposite. I would re-write the title to say ‘S&P has higher return than CDs in most years’. Not as sensational, but sure does sound more accurate.

  4. Last time this happened, stocks doubled over the next 5 years.

  5. Rob Bennett says:

    By no stretch of the imagination does this show that people should be invested in CDs today.

    What it show is that people should be invested in CDs when stock prices are what they were from the mid-1990s through 2008. Stocks have always provided horrible long-term performance from those sorts of price levels.

    The problem is that many people bought into the massive marketing campaign led by The Stock-Selling Industry not to consider price when investing in stocks. I think it would be fair to say that that advice is aimed at helping The Stock-Selling Industry, not the middle-class investor.

    Rob

    • Dave says:

      I disagree, this graph tells me that we should be investing in stocks right now. Based on this, they are really “cheap” and would provide the most potential growth.

  6. nickel says:

    Dividend Growth Investor: I was about to say the same thing. :-)

  7. Patrick says:

    I agree with ian in that if you saw the drops coming and moved your money to safer investments, then you would be far ahead. The only problem is that most people, especially with their retirement money, don’t ever look at it. This just goes to show that it’s important to keep any eye on our investments.

  8. Erik says:

    Well put Ian!

  9. Erik says:

    It also includes $10K annualized dollar cost averaging. Wonder what would happen with a more balanced $1K/month dollar cost averaging? I bet the CD doesn’t come close!

  10. Scott says:

    Saw analysis of this phenomenon elsewhere on the web. What about dividends? Stocks pay them, CDs don’t. That is pretty big difference that’s not included in this analysis (I don’t believe).

  11. eric says:

    Interesting but I hope people don’t go running in hordes to CDs now. :S


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