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I'm new to city-data, but whenever I google things like these, I always get threads from city-data, so I figured I'd make an account and ask here.
I'm 25 years old and want to start investing some money. That's pretty much the long and the short of it. I would like to invest money now, so that when I'm 55~65 or what have you, I have a steady, reliable income. Looking towards the future.
From what I've read, CD's are the most safe and reliable way to get the ball rolling on this, and on the topics I read, they spoke of 5% interest. That seemed pretty good. It'd add up pretty nicely over the years and really begin to work out. That was until I checked out bankrate.com and saw that it was closer to 1.5% than it was 5%.
So, as someone who knows nothing at all about investing but still wishes to get involved, what can you tell me about CDs? Are they simply not worth investing in anymore? 1.5% looks like it'd provide some really lackluster yields - even in the long-term.
Ideally, I wanted to do something like invest 2k every year and just let it compound and save up, but it sounds like the rates just keep getting lower and lower and lower.
Interest rates are so low that "investing" in CD"s, you actually lose money right now because of inflation...
I look at them in different ways...they can be protection for you if you are invested in riskier investments...(ie they were protection during the huge downturn of equities in 08-09). Or they can be used for an "emergency fund" also...
Like Mathjak says, you need to understand a little bit more about savings vehicles and how they work before you start committing money...
CDs were a great investment for conservative investors when they paied 5 to 7 percent. When this was the case, brokers used to laugh at me saying the S&P is bringing in 10 percent like falling off a log. But I could go to sleep, knowing I would being in X tomorrow and the next day and the next. I bought 5 year CDs at about 5 percent, some higher. The came out in April of last year. I did very well and miss those days.
The market is the only place right now to get any return on your money. I did put a bit into Discover bank, which is FDIC covered at 2.25 percent. It gives me some spending money each month to pay bills and even though its a 10 year CD, it only costs 9 months simple interest to break it. So I figure that after 1 year [and I am 1 and a quarter year in now] I can be ahead if interest goes up. But it has not gone up and most likely will not go up for at least another year. So I will make money until it rebounds. I can break my CD and be ahead at 4 plus percent. And for now I am making some money instead of putting it into the mattress. Then some of my money is in equities. I buy high div. stocks like ED, COP, XOM,KO ect. They are good blue chip stocks that will be her after I am gone. I reinvest the Div. and am up about 12 percent over a one year span. I would be up more but I invested just before the down turn last year and it ate up some of my gains.
CDs right now is no place at your age to put money. You will lose. Buy good quality stocks on dips like we see now. If you wait, there may be a bigger dip this summer, but there may not also. Over the long haul good stocks will out preform a 1 percent CD.
One thing about CDs is they will hit you with a penalty if you break them. So if you do go in, use a step system, where you put them in one at a time and if you need to break one, you don't have your whole investment coming out. Some CD issuers will allow you to take some money out of a CD and only issue a penalty on the amount you take out.
The days of nice perks to CDs is gone for now, some used to give you a step up, where if interest went up any time during the run of the CD you could one time go in and step up the CD to the higher yield. Some would allow you to add money to the CD. Those days are gone for now, but as with anything, what comes around goes around.
Even when rates are higher, typically after taxes and inflation the real returns ranged from low to negative.
usually the higher the rates the higher inflation is.
Getting 13% in 18% inflation back in the day was a loser. no other asset class has had as many negative return years as cash instuments did historically.
So, as someone who knows nothing at all about investing but still wishes to get involved, what can you tell me about CDs? Are they simply not worth investing in anymore? 1.5% looks like it'd provide some really lackluster yields - even in the long-term.
This is what someone advised me to do when I was your age, and I'm recommending it to you:
- Contribute a percentage of every paycheck you get automatically into a 401k
- Maximize your employer contribution - this is very important, since it is FREE MONEY*
- Invest it all in a fund that tracks the S&P 500
Later on, you can educate yourself a lot more about different kinds of investing. But the above is likely going to be the easiest and steadiest way for you to grow your money during the course of your career.
This is what someone advised me to do when I was your age, and I'm recommending it to you:
- Contribute a percentage of every paycheck you get automatically into a 401k
- Maximize your employer contribution - this is very important, since it is FREE MONEY*
- Invest it all in a fund that tracks the S&P 500
Later on, you can educate yourself a lot more about different kinds of investing. But the above is likely going to be the easiest and steadiest way for you to grow your money during the course of your career.
* Do NOT throw away FREE MONEY
^ what he said. Do this while you educate yourself as much as possible about investing. Then later if you want to branch out beyond this you will have the knowledge to do so.
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