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Question: Why is investing supposed to be better than putting money in a cd?

(Posted by: Eddie Warren on 2010-03-08 09:09:59)

I was about to invest 10k but then I remembered many years ago a friend of mine said the average person makes 25 % on their investments. I am assuming he meant 25 % a year. Now if I put 10k in a 5 year CD, it would double when it matured, and if I put it in a 10 year CD, it would quadruple. So I'm wondering why is investing that money so much more better than a CD? If my bank pays 2 % interest for a 5- year CD does that mean I'm only making 2 % a year?? I thought that 2 % was monthly.

Posted by: S on 2010-03-08, 09:21:17

Assuming U.S.... A well diversified portfolio will include various types of investments: CDs, stocks, bonds, real estate, etc. However, In order for your money to double in a 5 year CD you would have to be receiving interest of around 14% or 15% per year. This is far in excess of 5-year CD rates that are currently being offered (definitely less than 4% currently). Historically, over the last 80 years the stock market has AVERAGED about 9-10%. (there have been various ups and downs) So over the long haul, investing in the stock market has historically offered better return than a CD, although definitely more volatile. That is why people with a long time horizon will lean more heavily on stocks than "safer " investments, such as CDs UPDATE: If they are paying you 2%, then it is 2% per year, not monthly.

Posted by: Beaux Bells on 2010-03-08, 09:12:00

Remember just over a year ago? Stocks took a 60% loss. Look at CIT. Stocks are now worth what they were worth 10 years ago. People are just breaking even. What person told you this 25%? /

Posted by: M W on 2010-03-08, 09:15:27

In theory, the answer is better return on your money. The downside is, of course, there is no guarantee of better return, or of even profit. Some people thus choose to mix it up.

Posted by: jamesuppercutt on 2010-03-08, 09:36:29

I'm not so sure because if it did make a return of 25% then why would banks exist at their lowsy 1-5%

Posted by: Todd on 2010-03-08, 09:46:15

A 10 yr CD right now is only paying a little over 3%.....whomever told you 25% is a moron.

Posted by: Doctor Deth on 2010-03-08, 09:55:25

How do you figure you will double your money with a CD? 1-you have to pay tax on the interest every year 2-5 yr CD's are getting less than 3% annual interest, probably cloer to 2% - it would take you at least 24 yrs to double your money If you made 3% / yr and it was tax free the average LONG TERM rate of return investing in stocks is less than 10% anymore, and was NEVER anywhere NEAR 25%, except for an occassional yr and there have been years like 2008, where the avg investor LOST 40% if you invested $10,000 in an S &P 500 mutual fund or ETF in 2000, guess how much you would have now? - maybe $10,200 with dividends reinvested- almost ZERO gain in 10 yrs