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CDs are safe, stocks are not

By Sheyna Steiner ·
Friday, November 9, 2012
Posted: 1 pm ET

The stock market has performed pretty well in 2012. On the other hand, rates on certificates of deposit have sunk like a rock.

For the stock market, it hasn't been a smooth or pleasant ascent, but the major indices are all above the levels seen in January, despite the selloff Wednesday. On the day after Tuesday's election, the Dow Jones industrial average closed down 295 points and the S&P 500 dropped 32 points from the day's open.

Closing price of indices

S&P 500 Dow Jones
industrial average
Jan. 3, 2012 1,277.06 12,397.38
Nov. 7, 2012 1,394.53 12,932.73
Source: Google Finance.

Regardless of the returns served over the year, many Americans view CDs and savings accounts as the only safe places to keep their money these days, according to a survey conducted by Barclays Bank in September.

You may recall that early September saw the S&P 500 and the Dow Jones industrial average rise to their highest levels since the recession began. But unpredictable returns don't equal safety. Of those in the survey, 34 percent said that savings accounts and CDs were the safest place to keep money in the current economy. Only 4 percent said that stocks or bonds were the safest option while 10 percent chose precious metals and 5 percent said real estate. Another 12 percent opted for the security of cold, hard cash.

Sixteen percent of the surveys respondents said that there's no safe place for money in today's economic atmosphere.

It's not an ideal comparison because most people don't invest in the stock market for safety. It's like saying "Which is safer, a chainsaw or safety scissors?" One is designed to be safe. Nonetheless, 33 percent of savers said they wouldn't reallocate money from savings to stocks or bonds, even if the stock market improved. By "improved," they must have meant "became less volatile" which is clearly not going to happen anytime soon.

Given only two choices, would you put your money in a five-year CD at today's CD rates or an index fund that mimics the S&P 500 for 5 years?

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