Investing in stocks is very important for long term growth, but be aware of volatility and risk. A bank CD is a safe way to save money without any risk. With a bank CD, the account owner gains an annual interest of only around 2-5%. To me, that is not enough, and I think investing in the SPY is a much better way to save your money for retirement. The SPY averages a total growth of 9.7% per year without dividend reinvestment. This is a more risky investment compared to a CD, but it could grow your money quicker than a CD ever could. With a CD account, you are not allowed to take your money out of the account till the end of your term.
Another problem I have with CDs is their correlation with inflation. CDs often match inflation, so the money you think your “saving” is just staying the same due to economic inflation. Overall, in my opinion, investing in the S&P 500 is a way better investment than a CD. Even though there are low volatility and risk, the S&P is a great way to get good returns for retirement and also give a stable dividend for reinvestment.
The picture below represents the growth of a 5% CD account (which is very high) compared to the S&P 500. The SPY always wins!!
Categories: Financial Advice