What would you do if I told you that Ally Bank or ING Direct were offering an awesome *NEW* account?
What are the awesome terms, you ask?
Regardless of how much you put into this new account, you’re guaranteed to lose 2% each year.
Who, on Earth, would invest their money in such an account?!?
You, my friend. That’s who.
CD’s and Savings
For emergency funds and short-term needs, CD’s and Savings Accounts are great vehicles. I, typically, classify “short-term” as less than 24 months. Beyond that, I don’t much care for them.
I’ve seen a lot of people with account balances hovering anywhere from $50,000 – $250,000 (capping themselves at $250,000 per bank just proves they don’t understand FDIC Insurance).
Rather than saying:
“I Only Invest In CD’s”
“My money needs to be FDIC insured”
I would much prefer this “investor” say:
“I don’t understand inflation.”
“I’m not a very smart person.”
because that’s what it comes down to.
The Risk of Taking No Risk
The “investors” described above are scared to lose money. To them, “losing money” is only defined as a declining principal balance. However, they are completely ignoring inflation and the declining purchasing power. This is why CD’s Are For Hypocrites. By investing your money in a CD or Savings Account, you’re guaranteed to lose purchasing power.
The Risk of Doing Nothing
Now, I’ll NEVER be able to convince perennial CD investors that they are making poor decisions. I’m okay with this.
But there is another set of “investors” that I know I can influence.
Falling into this group are 20-30 somethings that don’t have a lot of experience investing. They fall into one of two buckets:
- Uncertainty and volatility have left them paralyzed, so they do nothing.
- Too many choices have led to paralysis, and they do nothing.
If you fall into either of these buckets…answer this question:
When has “doing nothing” ever been the solution? When you think about the biggest regrets of your life, do you regret things you DID or things you DIDN’T DO? I’m guessing the latter.
Rather than looking for opportunities IN SPITE OF market conditions, look for opportunities that exist BECAUSE of market conditions.
Why would anyone settle for -2%?