Last week I highlighted an article about the long-term performance of stocks vs. bonds. The upshot was that, while stocks hold a slight long-term edge, bonds can (and do) outperform stock over significant time periods. Today we’re turning our attention to certificates of deposit (CDs).
CDs vs. Stocks
Did you know that CD outperformed stocks* from 1994-2008? It’s true. Check out the graph below:
In fact, if you had invested $10k each year on January 1st, you would’ve had accumulated $207,509 worth of CDs and $178,253 worth of stocks.
Once again, these sorts of conclusion are highly dependent on the time frame under consideration. After all, the second half of 2008 included of the worst bear market declines in recent history. Moreover, CD rates were considerably higher during the late 1990s and early 2000s than they are right now.
Regardless, as with the stocks vs. bonds analysis, this study makes an important point… Yes, the long-term performance of stocks is typically better than that of other investment types. However, it’s very possible for stocks to underperform over shorter time periods, even when compared to the much more conservative investments.
*Note: Based on six month CD rates vs. S&P 500 performance including dividend reinvestment.