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Is it better to invest in stocks or a CD?
As you build your emergency fund, you may want to focus on generating a meaningful return while you store your money in a safe, highly liquid environment — like a high-yield savings account. But your savings goals shouldn’t stop when you have a flush emergency fund. Instead, it makes sense to save money in different ways.
And, once your high-yield savings account has enough money to cover your expenses for three to six months, it can also make sense to branch into other investment opportunities as well. Considering that you have numerous choices, though, you may wonder whether it’s better to invest in stocks or focus on safer vehicles like certificates of deposit (CDs). Well, chances are that both of these options have a place in your portfolio.
Lock in today’s strong interest rates with a CD today.
Is it better to invest in stocks or a CD?
“The first thing to consider is the investor’s timeline and risk tolerance,” says Brian Spinelli, AIF, co-chief investment officer at Halbert Hargrove. “When do they need the funds, and what is their ability to stick with price volatility?”
“Historically, stocks outperform cash and CDs over longer periods of time. However, there are periods when stocks can decrease significantly while CDs stay steady,” Spinelli says.
So, when is it best to invest in one over the other?
When it’s better to invest in a CD
“If an investor will need that money in the short term, they may not have the time to ride out a stock market pullback,” says Spinelli.
According to Hartford Funds, bear markets happen about every 3.5 years on average and last for more than nine months. If you’re saving for a near-term goal and get caught in one of these bear markets with a stock portfolio, you may be forced to accept losses. So, in these cases, CDs may be the better option.
The fact that bear markets happen regularly also makes the stock market relatively risky. That means if you are a risk-averse investor, you may be better served with a higher allocation of your excess funds in CDs than in stocks.
Take advantage of the high rates CDs come with now.
When it’s better to invest in stocks
CDs aren’t always going to be your best option. In many cases, stock investments are a better bet.
“Looking back on the last six instances where we hit peak CD rates, the following 12 months have seen stocks and bonds outperform CDs,” says Spinelli.
Sure, stocks come with significantly more risk than CDs, but the biggest financial rewards often come with the highest risks. Moreover, by practicing sound investment habits — like diversifying your investments — you may be able to reduce the risk in your portfolio.
So, stocks are typically a better option when you have a long-term time horizon and are comfortable with the ebbs and flows the stock market will take from time to time.
A well-balanced portfolio typically has CDs and stocks
The truth is that neither stocks nor CDs are the better option 100% of the time. These are both effective financial instruments that can help you meet your goals. As such, it’s likely wise to take advantage of them both. Here are a few reasons why:
- Diversification in your asset allocation can reduce risk: Stock investments come with more risk than CDs. However, when you add CDs to the mix, you may be able to reduce risk, increasing your risk-adjusted returns.
- CDs make compelling savings vehicles for short-term goals: Most people have some short-term financial goals. As Spinelli mentioned, the stock market may not be a good place to store your money for these goals. Instead, it may be wise to use CDs to save for the short-term.
- Stocks can offer impressive long-run gains: Considering the historic performance of stocks, they’re likely a strong investment vehicle for your long-term goals. For example, stock investments are often an effective way to save for retirement.
Diversify your investment portfolio with CDs today.
The bottom line
“The bottom line is if the investor has a longer-term horizon for the money and can bear the volatility, stocks generally provide a much better growth potential than CDs,” says Spinelli. So, whether stocks or CDs will be the better option for you depends on your goals and how comfortable you are with the risk of market volatility.
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Malcolm Gladwell on “Revenge of the Tipping Point”
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Malcolm Gladwell’s life has changed; he has not
On Tuesday, a new Malcolm Gladwell book comes out. And if history is any guide, it will be a bestseller. “They’re stories about ideas,” he said. “They have characters. They have plots. I’m usually trying to say something about the world.”
His first book, “The Tipping Point,” published in 2000, established the Gladwell recipe: he explores a theme through anecdotes and little-known scientific studies. “‘Tipping Point’ was about the epidemic as an incredibly useful way of understanding how ideas move through society,” Gladwell said. “And epidemics have rules. Let’s learn the rules, right?”
His seven New York Times bestsellers have sold 23 million copies in North America alone. His fee for corporate speeches is $350,000. His fans have downloaded a quarter-billion episodes of his podcast, “Revisionist History,” and he founded a company called Pushkin Industries to produce it.
In other words, Gladwell has come a long way from the small Canadian town where he grew up, son of a British father and a Jamaican mother, whom he describes as “subversive,” someone who would write notes to excuse her son from class with a blank space. “I would just fill out the date,” said the man who skipped a lot of school.
He attended the University of Toronto, but his best education was the ten years he worked for the Washington Post. “I knew nothing about newspapers,” he said. “I was so raw. I was 23, I think, or 24. Bob Woodward was two rows away from me. I learned at the feet of the greatest journalists of my generation.”
In 1996, Gladwell joined The New Yorker. He wrote about why, in the 1990s, New York’s crime rate plummeted in an article called, “The Tipping Point.” A book followed. It introduced a recurring Gladwellian theme: hidden patterns in the way the world works.
He’s a world-class contrarian, about college (“You should never go to the best institution you get into, never; go to your second or your third choice. Go to the place where you’re guaranteed to be in the top part of your class”); about working from home (“It’s not in your best interest to work at home. … If you’re just sitting in your pajamas in your bedroom, is that the work life you want to live, right? Don’t you want to feel part of something?”); about football (“I think the sport is a moral abomination”).
Gladwell says he enjoys being provocative: “Of course!” he said. “I like poking the bear. I mean, journalists should poke the bear.”
Gladwell’s fans love his storytelling, and the A-ha! moments they bring. His critics, on the other hand, have described his writing as “generalizations that are banal, obtuse, or flat wrong,” and “simple, vacuous truths [dressed] up with flowery language.” “I’m with the idea that not everyone’s gonna like my work,” Gladwell said. “100% of people don’t like anything.”
In a 2021 “Sunday Morning” interview, Gladwell said, “I would rather be interesting than correct.” He called that “an overly provocative way of saying things! No, I think what I meant was, if I turn out not to be right, I’m not devastated. I accept that as the price of doing business.”
Gladwell often turns his mistakes into new chapters or podcast episodes. In “The Tipping Point,” he explained that New York’s crime drop was the result of “broken windows policing.” As he described it, “Little crimes were tipping points for big crimes.” But that philosophy led to New York’s policy of “stop and frisk.”
“Doing 700,000 police stops a year of young Black and Hispanic men is deeply problematic,” Gladwell said. “We were wrong. I was part of that. I’m sorry.”
Which brings us to the new book, “Revenge of the Tipping Point.” “The original ‘Tipping Point’ is a very optimistic, rosy book about the possibilities for using the laws of epidemics to promote positive social change,” he said. “In the last 25 years, I spent a lot of time thinking about the other side of that problem, which is, what happens when people use the laws of epidemics in ways that are malicious or damaging or self-interested?”
The book’s stories range from topics as obscure as cheetah reproduction, to stories as big as the Holocaust. He writes that almost nobody talked about the Holocaust, or even called it that, until NBC aired a miniseries called “Holocaust” in 1978. “And what changed happened like [snaps fingers]. I mean, it was just there was a tipping point in our understanding of the Holocaust,” he said.
This book arrives at a tipping point in Gladwell’s own life. In a span of five years, he got engaged, had two children, turned 61, and moved from Manhattan to pastoral Hudson, New York. “It’s a lot to handle. There isn’t a single person who ever lived whose parents did not say, ‘This is a lot!'” he laughed. “I have become the person that, you know, I once despised, and nothing makes me happier.”
He also despises Ivy League colleges, accusing them of prioritizing their own reputations over focusing on their students.
Has parenthood affected his outlook on any of the things that he’s written about before? “Well, it’s prepared me for the possibility that I will be a massive hypocrite!” Gladwell laughed. “So, you know, it’s one thing to write about what you should do with your kids when you don’t have them.”
For all his success, Malcolm Gladwell maintains that nothing has changed in his approach, his work ethic, or his contrarianism. “It hasn’t changed what I do,” he said. “I don’t farm out my research; I still go on reporting trips. It hasn’t gotten old. In fact, my great regret is I don’t have time to do more.”
READ AN EXCERPT: “Revenge of the Tipping Point” by Malcolm Gladwell
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Story produced by Wonbo Woo. Editor: Remington Korper.
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Coldplay on their record-breaking world tour
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