During times of stock market weakness it’s a common knee-jerk reaction to find as many safe havens as possible. Some are happy to keep their money in money market accounts yielding nothing. Others like to shove their bills under their mattress. I prefer allocating my truly risk-free money to a higher yielding online bank or to Certificates of Deposits. Bonds can lose value, especially if you aren’t willing to hold them to maturity.
Before the Federal Reserve started cutting interest rates, one could find very respectable long-term CDs yielding 4% or greater. If you believe the ideal withdrawal rate in retirement doesn’t touch principal like I do, then a 4% yielding CD is a suitable investment once you’ve accumulated enough. The “problem” now is that 5-year CDs are yielding at best 2.5%. Hopefully they inch higher as the Federal Reserve continues to raise rates despite evidence indicating they don’t have to.
This post will discuss deploying your capital in CDs for capital preservation versus investing more money in the stock market during difficult times. I’ve invested a portion of my net worth in CDs for the past 17 years and will continue to do so with a portion of my savings.