What does Dave have against investing in CDs?
For saving (emergency funds, saving for purchases, etc.) CDs are great. As investments, they are bad. CDs guarantee you a small return, which increases the longer you commit to leave it. There is usually a penalty for taking the money out earlier than agreed. CDs typically pay 1 or 2 percent per year. Inflation increases 3 to 4 percent per year. (The cost of bread goes up each year by 3 to 4 percent.) If you invest in a CD and receive 2 percent, you’ll pay taxes on this gain if not in a retirement account like an IRA. You’re looking at an after-tax return of 1.5 percent, when the cost of living increased more than twice this amount. The only guarantee you receive is that your money will lose value over time compared to the cost of bread, gas, electricity, etc. Long term, you need to earn a minimum 6 percent annual return to pay taxes and be left with enough to account for inflation so that your dollars do not lose value. In order to grow your investment, you must outpace inflation. Mut
