Tags: Retirement | retirement | certificates of deposit

Certificates of Deposit in Your Retirement Planning

By    |   Wednesday, 17 June 2015 01:38 PM

Certificates of deposit, or CDs, will probably never be the biggest component of your retirement plan, especially not when interest rates are low. Stocks and bonds, in different proportions, are going to be the anchors of the typical 401(k) or other money-growing retirement fund.

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But cash, and cash equivalents such as CDs and money market accounts, have a role to play, too, especially as your retirement date nears, and you're looking to lock down money your portfolio has already made through higher-yield investments, and shield some of the balance from the ups and downs of the equities markets.

"When my clients are about three to five years away from retiring, I have them start to move some of their longer-term investments into cash, which they keep in money market account, savings or CDs," Chicago-based financial planner Chris Long said in an interview with Ally Bank.

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Granted, the fixed rate of return on CDs offered by banks is small even compared with conservative bond yields, and especially with the higher-flying (but riskier) returns offered by stocks. And you have to let the CD mature untouched for a duration set by the bank to avoid incurring a financial penalty.

The upside from these fixed income securities, as they're called, is greater certainty and stability, since CD deposits are FDIC-guaranteed up to $250,000 as of 2015. Because even the bond market can wobble.

"It's important to remember that CDs are more of a wealth-preservation tool than a wealth-building tool," according to LifeWire financial writer David Fisher, who describes certificates of deposit as "ballast" in a retirement portfolio that seeks real growth in stocks and bonds.

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Certificates of deposit, or CDs, will probably never be the biggest component of your retirement plan, especially not when interest rates are low.
retirement, certificates of deposit
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2015-38-17
Wednesday, 17 June 2015 01:38 PM
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