There are few guarantees in life and especially the market, but a certificate of deposit is about as close as you can get to one.

Stay Safe in a Turbulent Market with Certificates of Deposit

posted in: Banking Tips, CDs, Stock Market | 0

It is very scary out there for the average stock investor. Roughly half of all adults in the United States own stocks. Most of those people own them through retirement plans they have set up at work. Most also do not pay very close attention to what the stock market is doing or why it is behaving in a particular way. This is why the events in the market in recent months scare many.

Turbulent Markets With No Clear Explanation

Markets that fall dramatically must have a story connected to their fall for the sake of clarity. Markets that are simply falling without a clear story behind them frustrate investors and cause many to give up on investing entirely. The New York Times in an article written last August makes note that this market volatility does not have a single source,

What’s fascinating is that there is no clear, simple story about what is different about the outlook now for interest rates, for United States and European corporate profits or for economic growth compared with one week ago, when the S.&P. 500 index was 10 percent higher.

With all of this consternation, some are seeking calmer waters.

A Guaranteed Return

There are few guarantees in life, but certificates of deposit are about as close as you can get to one. A certificate of deposit is an investment made with a bank with a guaranteed return over a set period of time. The investor knows in advance what kind of interest rate return he or she will receive when the CD matures.

Certificates of deposit have different maturity terms depending upon what the investor would like to purchase. The longer the maturity term, the higher the annual interest rate. Even better, when using an online bank, the rates often best those of the brick and mortar institutions. Consider the 1.3% rate offered by Ally Bank on their 18 month CD.

Trading Risk For Safety

The stock market on average does tend to offer higher rates of return, but only with higher levels of risk as well. This type of investment is simply not appropriate for all investors. Those nearing retirement, those who do not wish to take the time to pick out stocks, or those who are simply risk averse are often more comfortable with a CD investment.

Consider the scenario of the individual looking down the barrel of retirement during the great crash of 2008-2009. Had that person socked away all of his or her money in the stock market, they would have ended up with a dramatically decreased portfolio to retire on. It could literally change the age at which someone is able to retire.

Beating The Market In The Short Term

Let us not forget that there are periods of time in the stock market that are negative. The first quarter of 2016 appears headed for a slightly negative to perhaps flat line result for the overall market. The results are even worse in certain sectors such as the oil industry.

Compare this to the peace of mind that a CD investor has during the same period of time. The CD holder knows that he or she is still earning the same amount regardless. That is particularly comforting to the person nearing retirement age.

Layering CDs For Income Needs

If you are the type of person prone to worrying, fear not there are many just like you. This is why a layered CD strategy is exactly what you require. It involves purchasing multiple CDs that have differing maturity timelines. In other words, one might purchase a 12 month CD along with a 3 year, 5 year, and 10 year CD all at the same time.

This strategy allows for payments to arrive at all different intervals so as to make for a constant stream of cash arriving. Most feel happier with this setup and comfortable knowing that they will always have some income.