CDs the Toirtose to the Stock Market Hare

Before the market crash of 2008, it had become accepted wisdom that stocks, over the long-term, will outperform conservative deposit account investments like Certificates of Deposit.

But is this accepted wisdom true?

CD Performance Weighted for Risk Aversion

The first item of business, when making such a comparison, would be to note the lack of risk in CDs. CDs may entail less risk because they’re:

– Backed by FDIC insurance up to $250,000 per depositor per account. Not one depositor has lost money in an FDIC-insured deposit account since the FDIC’s founding in 1933.

– Influenced by interest rates. During a period of high interest rates, CDs pay well. By laddering CDs over time, returns can be amplified.

– Not tethered to the performance of any one company. In the stock market, today’s star can morph into tomorrow’s dog without warning.

CDs vs. Stocks by the Numbers

Barron’s ran an interesting piece earlier this year that punctured some major holes in the “cult of equities” that has arisen over the years. According to figures cited by Barron’s, bonds outperformed stocks from 1968 to 2009, as measured by the S&P 500.

It should be noted that the Barron’s figures do not account for dividends paid by stocks. Nevertheless, such studies clearly show that the great majority of stock market gains occur intermittently, unsteadily.

CDs, meanwhile, plug along, slowly but surely.