What Thanksgiving Can Teach You About CD Rates

Thanksgiving means many things to Americans. It can be a day to give thanks and be with family. It can be a day to savor a rich and wide variety of foods. It can also simply be an excuse to watch football on a Thursday. The great thing is that for most people, Thanksgiving is probably some combination of these things, and more. What you probably haven't thought of, though, is that Thanksgiving can also help you choose CD rates and lengths.

This isn't as much of a stretch as it might seem. Thanksgiving is, after all, rooted in a celebration of the annual harvest. Most Americans today don't till the soil and reap the crops. Instead, they use money to provide for themselves--money to meet immediate needs and money to be set aside for future needs. Thanksgiving provides a lesson in striking the balance between immediate and future needs.

Thanksgiving as an Example for Savings Rates

To the pilgrims, the harvest wasn't just to provide for one big Thanksgiving feast. It had to last them through the year ahead. This took planning and discipline. The pilgrims had to figure out:

• How much food they would need to sustain them from month to month.
• How long certain kind of foods were safe to store.
• When the next harvest would be available.

In other words, what the pilgrims did to provide for themselves was based on the same fundamental concepts we still use today for financial planning. To save for your future needs, you have to both quantify those needs in dollar terms and figure out the timing of those needs. You then need to set your savings rate and investment mix accordingly.

Planning Your Financial Harvest

Timing is an important element. We might think of a harvest as one big event in the fall, but in truth farmers grow different crops that will produce food at various times of the year. Meanwhile, stores of food aren't just set aside for one point in time but must be available to meet an ongoing series of needs.

Similarly, your future financial needs are not geared to one specific point in time. You will probably have a series of needs, both leading up to and then throughout retirement. Like the pilgrims, you have to quantify those needs and then figure out the timing of those needs. You can then build your portfolio accordingly:

• Short-term needs. Money for an emergency fund and money for large expenditures planned for the next year should be in savings or money market accounts, where they are accessible on a reasonably short-term basis. You might also consider very short-term CDs, if those CD rates are competitive with savings account rates.
• Intermediate needs. For needs from 1 to 5 years out, consider matching CD maturities and amounts with the timing and size of those needs, and then shopping for the best CD rates within those targets.
• Longer-term needs. For needs beyond 5 years, consider mixing in some more aggressive investments like stocks to combat the long-term effects of inflation.

A good harvest should be celebrated. Like the pilgrims, if you exercise care and planning, you will find yourself with reason to give thanks in the future.

Source:

The First Thanksgiving • Te Hisrtory Channel: http://www.history.com/content/thanksgiving/the-first-thanksgiving