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CDs Investing Beating S&P Investing, Since 1994

Posted By Jim On 07/13/2009 @ 6:26 am In Banking | 14 Comments

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 [3]. Check out this chart:

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.


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[3] The Big Picture: http://www.ritholtz.com/blog/2009/07/sp500-vs-cds-1994-2008/

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