Imagine two people who added $10,000 to their investment accounts on January 1st, every year for the past 15 years.
One of them is risk averse. They put the money into Certificates of Deposits, getting a few percentage points each year, but the principal is insured.
The other is less risk averse; they put money into an S&P500 Index each year.
Who comes out ahead? The answer might surprise you:
Stocks vs Certificates of Deposit (1994 – 2008)
CDs in 2009 yield 1% – 2%, as the market fell and then rally; if the S&P doesn’t perform well for the rest of this year, CDs will have more gains again.
As of March, Bonds had outperformed Stocks from 1968 to 2009 — 40 years
Stocks vs. Bonds (March 28th, 2009)
Used the CDs 6 mo (Annual) data from here:
Used the annual returns (with dividends) from here:
(did each year gain/loss seperate, then added the $10K for the next year)