Are CDs considered an investment?

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watchnerd
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Re: Are CDs considered an investment?

Post by watchnerd » Sat Sep 01, 2018 8:48 am

Nissanzx1 wrote:
Sat Sep 01, 2018 4:55 am
Bank stock can be a sweet deal. I know someone who invested about $100K 30 years ago in a small local bank and the stock is now worth $1.1M and its spins off $33K every quarter in dividends and has for years now.
Wait, what?

Please tell me where I can buy a stock for $1.1M that is paying me effectively 12% a year in income taxed at the dividend rate.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Nissanzx1
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Re: Are CDs considered an investment?

Post by Nissanzx1 » Sat Sep 01, 2018 9:13 am

watchnerd wrote:
Sat Sep 01, 2018 8:48 am
Nissanzx1 wrote:
Sat Sep 01, 2018 4:55 am
Bank stock can be a sweet deal. I know someone who invested about $100K 30 years ago in a small local bank and the stock is now worth $1.1M and its spins off $33K every quarter in dividends and has for years now.
Wait, what?

Please tell me where I can buy a stock for $1.1M that is paying me effectively 12% a year in income taxed at the dividend rate.
The bank is in a rural area within the Midwest with only a few locations and was started in the early 80's. None of the owners will sell the shares. They are all enjoying the dividends. Not a joke, I'm very close to this person and I've seen the checks myself.

BTW, I'm a HUGE Watch nerd myself!

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vineviz
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Re: Are CDs considered an investment?

Post by vineviz » Sat Sep 01, 2018 9:35 am

HEDGEFUNDIE wrote:
Fri Aug 31, 2018 10:55 am
neveragain wrote:
Fri Aug 31, 2018 10:50 am
But some people say CDs are not an investment, just a way to save money.
What is the difference?
A savings vehicle has little to no price volatility, whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value.

I’d say that a CD, which has no real chance of going to $0.00, is not really an “investment” in the classic sense of the word.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

HEDGEFUNDIE
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Re: Are CDs considered an investment?

Post by HEDGEFUNDIE » Sat Sep 01, 2018 9:43 am

vineviz wrote:
Sat Sep 01, 2018 9:35 am
HEDGEFUNDIE wrote:
Fri Aug 31, 2018 10:55 am
neveragain wrote:
Fri Aug 31, 2018 10:50 am
But some people say CDs are not an investment, just a way to save money.
What is the difference?
A savings vehicle has little to no price volatility, whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value.

I’d say that a CD, which has no real chance of going to $0.00, is not really an “investment” in the classic sense of the word.
So if I have a stable value fund in my 401k paying 3%, that is not an investment?

Better to treat all of your financial assets holistically and consistently.

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Artsdoctor
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Re: Are CDs considered an investment?

Post by Artsdoctor » Sat Sep 01, 2018 10:01 am

What is going on with this thread? You have principal and you have income when you have a CD. You have a dictionary, you can look up the definition of an investment. As far as a varying price goes, having a variable NAV doesn't make something an investment--rather, find a definition of that somewhere if you feel strongly about it. However, check the CDs that are being offered at any brokerage house and you'll see plenty of price variably.

Jags4186
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Re: Are CDs considered an investment?

Post by Jags4186 » Sat Sep 01, 2018 10:06 am

Everything is an investment. If you hold cash wrapped in plastic and buried in the backyard, that’s an investment in cash.

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watchnerd
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Re: Are CDs considered an investment?

Post by watchnerd » Sat Sep 01, 2018 10:09 am

Jags4186 wrote:
Sat Sep 01, 2018 10:06 am
Everything is an investment. If you hold cash wrapped in plastic and buried in the backyard, that’s an investment in cash.
Bitcoin?
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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cheese_breath
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Re: Are CDs considered an investment?

Post by cheese_breath » Sat Sep 01, 2018 10:10 am

vineviz wrote:
Sat Sep 01, 2018 9:35 am
... whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value...
Just like at the track or casino?
The surest way to know the future is when it becomes the past.

typical.investor
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Re: Are CDs considered an investment?

Post by typical.investor » Sat Sep 01, 2018 10:17 am

vineviz wrote:
Sat Sep 01, 2018 9:35 am
HEDGEFUNDIE wrote:
Fri Aug 31, 2018 10:55 am
neveragain wrote:
Fri Aug 31, 2018 10:50 am
But some people say CDs are not an investment, just a way to save money.
What is the difference?
A savings vehicle has little to no price volatility, whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value.

I’d say that a CD, which has no real chance of going to $0.00, is not really an “investment” in the classic sense of the word.
So treasuries are not an investment then?

I did a 20 year 4% callable CD when rates were at their lows and everyone said the interest rate/inflation risk was too great for that duration. It lasted 24 months and got called.

I really don’t think TSM (Total US stocks) has anymore chance of going to zero than treasuries or CDs, so count that put too.

Maybe emerging markets are the only investment available, but probably not even then.

Guess I am a saver then.

neveragain
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Re: Are CDs considered an investment?

Post by neveragain » Sat Sep 01, 2018 10:25 am

Jags4186 wrote:
Sat Sep 01, 2018 10:06 am
Everything is an investment. If you hold cash wrapped in plastic and buried in the backyard, that’s an investment in cash.
To me, that's just saving, not investing. Since the money won't grow at all.

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vineviz
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Re: Are CDs considered an investment?

Post by vineviz » Sat Sep 01, 2018 10:39 am

HEDGEFUNDIE wrote:
Sat Sep 01, 2018 9:43 am
vineviz wrote:
Sat Sep 01, 2018 9:35 am
HEDGEFUNDIE wrote:
Fri Aug 31, 2018 10:55 am
neveragain wrote:
Fri Aug 31, 2018 10:50 am
But some people say CDs are not an investment, just a way to save money.
What is the difference?
A savings vehicle has little to no price volatility, whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value.

I’d say that a CD, which has no real chance of going to $0.00, is not really an “investment” in the classic sense of the word.
So if I have a stable value fund in my 401k paying 3%, that is not an investment?
That’s right.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: Are CDs considered an investment?

Post by vineviz » Sat Sep 01, 2018 10:43 am

cheese_breath wrote:
Sat Sep 01, 2018 10:10 am
vineviz wrote:
Sat Sep 01, 2018 9:35 am
... whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value...
Just like at the track or casino?
I should have expressly included the common denominator that separates both savings and investments from things like wagers: ownership of an asset.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

stan1
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Re: Are CDs considered an investment?

Post by stan1 » Sat Sep 01, 2018 11:53 am

All semantics that have no relevance to becoming financially independent. I have a fixed income allocation that at various times over my lifetime have included corporate bond funds, treasury bond funds, total bond funds, muni bond funds, TIPS funds, T-Bills, money market accounts, CDs, money market savings accounts, TSP G Fund, EE bonds, and I-Bonds. Some may want to break this out further or choose never to put money into one of these categories. I've liquidated holdings in these over the years to pay for down payments, cars, home improvements, and paying off mortgage. I never keep more than $3-5K in a checking/savings account. The rest I manage per my asset allocation and then rebalance if I need to spend money.

Turbo29
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Re: Are CDs considered an investment?

Post by Turbo29 » Sat Sep 01, 2018 11:59 am

neveragain wrote:
Sat Sep 01, 2018 10:25 am
Jags4186 wrote:
Sat Sep 01, 2018 10:06 am
Everything is an investment. If you hold cash wrapped in plastic and buried in the backyard, that’s an investment in cash.
To me, that's just saving, not investing. Since the money won't grow at all.
If we went into a period of deflation the money would grow in real terms.

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cheese_breath
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Re: Are CDs considered an investment?

Post by cheese_breath » Sat Sep 01, 2018 12:03 pm

vineviz wrote:
Sat Sep 01, 2018 10:43 am
cheese_breath wrote:
Sat Sep 01, 2018 10:10 am
vineviz wrote:
Sat Sep 01, 2018 9:35 am
... whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value...
Just like at the track or casino?
I should have expressly included the common denominator that separates both savings and investments from things like wagers: ownership of an asset.
OK, so at the other end of the spectrum is there a common denominator that separates investments from speculation in oyster bed individual stocks?
The surest way to know the future is when it becomes the past.

xpy1999
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Re: Are CDs considered an investment?

Post by xpy1999 » Sat Sep 01, 2018 12:16 pm

Where can I still find 3.5 rate 5 year CD?

Jags4186
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Re: Are CDs considered an investment?

Post by Jags4186 » Sat Sep 01, 2018 12:25 pm

neveragain wrote:
Sat Sep 01, 2018 10:25 am
Jags4186 wrote:
Sat Sep 01, 2018 10:06 am
Everything is an investment. If you hold cash wrapped in plastic and buried in the backyard, that’s an investment in cash.
To me, that's just saving, not investing. Since the money won't grow at all.
If there is deflation then it has grown in real terms. If interest rates go negative, cash is a positive real investment.

Jags4186
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Re: Are CDs considered an investment?

Post by Jags4186 » Sat Sep 01, 2018 12:27 pm

watchnerd wrote:
Sat Sep 01, 2018 10:09 am
Jags4186 wrote:
Sat Sep 01, 2018 10:06 am
Everything is an investment. If you hold cash wrapped in plastic and buried in the backyard, that’s an investment in cash.
Bitcoin?
Bitcoin is no different than gold. The only difference is that gold has 1000s of years track record.

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vineviz
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Re: Are CDs considered an investment?

Post by vineviz » Sat Sep 01, 2018 12:28 pm

cheese_breath wrote:
Sat Sep 01, 2018 12:03 pm
vineviz wrote:
Sat Sep 01, 2018 10:43 am
cheese_breath wrote:
Sat Sep 01, 2018 10:10 am
vineviz wrote:
Sat Sep 01, 2018 9:35 am
... whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value...
Just like at the track or casino?
I should have expressly included the common denominator that separates both savings and investments from things like wagers: ownership of an asset.
OK, so at the other end of the spectrum is there a common denominator that separates investments from speculation in oyster bed individual stocks?
Prudence?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

gmaynardkrebs
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Re: Are CDs considered an investment?

Post by gmaynardkrebs » Sat Sep 01, 2018 3:11 pm

Does the following sentence sound quite right to you: "I am investing in CDs."
It doesn't to me.

neveragain
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Re: Are CDs considered an investment?

Post by neveragain » Sat Sep 01, 2018 3:15 pm

xpy1999 wrote:
Sat Sep 01, 2018 12:16 pm
Where can I still find 3.5 rate 5 year CD?
Mine is with Goldman Sachs through Fidelity.

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cheese_breath
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Re: Are CDs considered an investment?

Post by cheese_breath » Sat Sep 01, 2018 3:42 pm

vineviz wrote:
Sat Sep 01, 2018 12:28 pm
cheese_breath wrote:
Sat Sep 01, 2018 12:03 pm
vineviz wrote:
Sat Sep 01, 2018 10:43 am
cheese_breath wrote:
Sat Sep 01, 2018 10:10 am
vineviz wrote:
Sat Sep 01, 2018 9:35 am
... whereas as investment entails taking on some risk of that you will lose your money in exchange for some chance of increasing in value...
Just like at the track or casino?
I should have expressly included the common denominator that separates both savings and investments from things like wagers: ownership of an asset.
OK, so at the other end of the spectrum is there a common denominator that separates investments from speculation in oyster bed individual stocks?
Prudence?
Good answer.
The surest way to know the future is when it becomes the past.

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Toons
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Re: Are CDs considered an investment?

Post by Toons » Sat Sep 01, 2018 4:33 pm

Certificate Of Depreciation

:wink:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

WillRetire
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Re: Are CDs considered an investment?

Post by WillRetire » Sat Sep 01, 2018 4:50 pm

Yes, CDs can be considered to be an investment. If you shop around, you can get good rates at times. And you can create a CD ladder. Just because an "investment" doesn't fluctuate wildly in value doesn't make it less of an investment.

The famous investor David Swensen (Yale Endowment manager) recommends an asset category called "riskless" which are instruments whose value cannot go down (barring the fall of your government). CDs are one such riskless investment. So are I-Bonds and other treasuries held to maturity. Having some % of one's portfolio in riskless instruments helps one sleep at night, and weather market storms.

Example: I bought the NWFCU 3.0% 3-year CD almost 3 years ago. It has beaten some other "investments" over the same period.

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burt
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Re: Are CDs considered an investment?

Post by burt » Sat Sep 01, 2018 5:09 pm

"Are CD's considered an investment?"

Most definitely.
When stuff hits the fan you can buy food with it. Hopefully.

burt

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TD2626
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Re: Are CDs considered an investment?

Post by TD2626 » Sat Sep 01, 2018 5:09 pm

cheese_breath wrote:
Sat Sep 01, 2018 3:42 pm
vineviz wrote:
Sat Sep 01, 2018 12:28 pm
cheese_breath wrote:
Sat Sep 01, 2018 12:03 pm
vineviz wrote:
Sat Sep 01, 2018 10:43 am
cheese_breath wrote:
Sat Sep 01, 2018 10:10 am

Just like at the track or casino?
I should have expressly included the common denominator that separates both savings and investments from things like wagers: ownership of an asset.
OK, so at the other end of the spectrum is there a common denominator that separates investments from speculation in oyster bed individual stocks?
Prudence?
Good answer.
When trying to define "investment" one has to also has to define "savings", "speculation", and "gambling".

(Note that speculation and gambling are not prudent and ill-advised)

I would consider "speculation" to be characterized by diversifiable risk, short-term trading, and strategies with risk substantially above even a (very risky) 100% stock portfolio. While the expected return is positive, the risk is so high relative to expected return that the Sharpe ratio is low and it is not rational to use such a strategy. (In my opinion, the separation between gambling and speculation is that gambling has a negative expected return and a preposterous risk level, so it is never rational under any circumstances).

On the other end of the risk spectrum are terms like "savings" or "cash". I would consider cash to be anything that has zero nominal risk and is liquid withing, say, 6 months. (A CD that is for 5 years has no nominal risk but isn't liquid). Thus "cash" includes savings accounts, checking accounts, money markets, and coins in couch cushions. Note that an investment with no nominal risk may have real (e.g. inflation-indexed) losses. I tend to define "savings" as being equivalent to my definition of cash in most contexts, though in some contexts it could take on a broader meaning (such that it means all savings in general, e.g. the whole portfolio). Also "savings" can be used in a cashflow context, such as "savings rate".

I do consider an investment to be anywhere one puts money that:
1. Isn't an expense for a consumable product (e.g. buying a hamburger isn't an investment in an asset).
2. Has as its primary purpose the preservation or increasing of net worth
3. Isn't speculation/gambling
4. Is convertible to cash via a bank, company, or market, possibly with delays due to liquidity
5. Doesn't require conventional labor (While one can put money into one's education, I don't think investing in tuition is an "investment" because while it increases human capital, getting said human capital requires labor. Not that tuition isn't worth it, you just can't convert it to cash like you can a check.

These are just my own non-expert opinions. There's no firm consensus on many of these definitions. Not getting so caught up in what something is defined as can help.

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