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messiah b | WHich are better to ivest in CD's or Mutual funds? |
I'm not experienced when it comes to investing and would like to know which is a better choice to make. |
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Club_obi_wan
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The answer depends on the amount of risk you're willing to take, If you do not want to lose money, or do not want to take the risk of losing money, then a cd is your best bet, it pays a fixed rate of interest over a certain time period, usually a year or 6 months, an example of a 1 year cd at 5% if you invest 1000 is:
1000 x 1.05 = 1050 - you've made 50 dollars in one year.
A mutual fund on the other hand fluctuates with the market, it may go up, it may go down, depending on the fund you invest in and strength of the market at the time. Many mutual funds, however, pay what's called a dividend, or a cash distribution based on the amount of shares you own. If you establish your mutual fund to reinvest dividends (use the dividend payment to buy more of the same mutual fund) then you can really increase your chances of making money through compounding interest.
Some good low risk mutual funds include high yeild bond funds, anabx, or municipal bond funds, or perhpas utility sector funds. |
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mt_pelion
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A CD has no risk of loss in value as long as the issuing bank is still in business, however, you won't see a return of more than 4-5% in the current market.
A mutual fund is basically a collection of stocks that a broker monitors and trades. There is a risk of loss (in varying degrees, read the investment prospectus for risk tolerance information), but there is also a better chance of getting a good return.
My investments are currently in mutual funds, and I lost about 3% in the first quarter of 2006, but had a total gain of 7% by the end of 2006. So far in 2007 I have had a gain of 3%. |
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idgaf
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i have found that mutual funds are more lucrative than cd's, but cd's are more secure.. if you are in it for the long haul, i'd say get some good mutual funds.. |
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Spartaness
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mutual funds |
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alivuk
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Honestly, this is one of the questions that should not be asked or at least it should not be asked as is. Because, when you asked what is the better option for investing, you could also put buying real estate, transferring money from dollars to foreign currency etc. CD is a "sure money" that more or less beat inflation and if you have any savings that you want to have easily accessible, you should keep it in CD because it has greater interest rate then "regular" savings and you can access your money right away if there is a need. On the other hand, once you have that covered (rule of the thumb is to keep 6 months of living in your saving) you should think of investing into something that has larger rate of return but it is not "sure money". Probably best option is mutual fund(s) because they are less volatile then individual stocks. From there, you can diversify in different funds, depends on your risk comfort level.
In my case, I have some money in CD with 5% rate and my portfolio of mutual funds had 24% return rate for last year. YTD is 12%. I do have rather risky funds such as Vanguard Precious Metals and Mining and T.Row Price Latin America for example but I do have high risk comfort level. |
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Joseph T
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Nobody can tell you the answer to this sorry, they are both the best choice depending on lots of different factors.
CDs are better if you are risk-averse
Mutual Funds provide more chance for gains but along with that comes more risk and fees to pay. |
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vixalle21
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CD's are more secure but you will see a way smaller return on your money. Mutual funds pay more (dividends, interest, etc). The good thing about mutual funds is that each fund invests a small percentage in a big group of stocks. And you can buy mutual funds that are geared towards your investment objectives and risk tolerance, there are so many to choose from. so, you can invest in a conservative fund (like, us treasury fund or growth fund) OR if you are a risktaker you can buy aggressive or international funds. but if you dont like risk at all then CD's would be better for you. |
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Melody S
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To me....the answer to this depends upon the purpose of the investment and your time frame. IMO stocks or stock mutual funds are only a long term investment option. If you have less than 3 years min. I wouldn't even consider stocks or stock mutual funds. If you have the long term time frame however, it is tough to beat a well diversified stock portfolio for good returns and minimizing risk. CD's are a great place to park money that you don't need right now, but will soon (like 6 months or a year). They are very secure and will give you somewhere around a 5% return. The downside is that you can't get at your money until the time of the CD is up without paying penalties. Another negative is that since you are earning interest and not capital gains (like when you buy a stock at a certain price and it goes up that is called capital gains) the interest from a CD is taxed as ordinary income. Genereally speaking for most people capital gains are taxed at a lower rate. If you don't have the time frame for stocks but don't want to be locked into the term of a CD a money market is a great alternative. It gives you good intersest rates 4.5% plus right now, but without locking you into a certain time frame. Many money market accounts allow you to write checks and many even have debit cards with them.
If you are serious about wanting to invest I would recomend talking to a financial advisor that you trust and putting together an individual investment strategy. If you don't want to put that much into it or you only have a little bit to start with and you want to invest in mutual funds you can try a mutual fund like the Ivy Asset Strategy fund. I own this fund and love it. It allows the managers of the fund to invest in any market where they see a good opportunity. It is a great choice if you don't have enough to diversify yourself, or don't want to take the time to do it yourself or hassel with it. |
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Dr Barry
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The best answer I’ve seen in this list to your question comes from Melody S. She advises going to a financial advisor. Important investment decisions can only be intelligently made after you educate yourself to understand your options. This is important for a non-experienced investor such as you. Posting here is a good start.
Between your two choices of CD vs Mutual Funds, you must ask yourself 1) how much of your total portfolio are you investing ; 2) what is your overall risk tolerance and 3) what is your realistic time horizon.
An advisor can help you do that. But more importantly, an advisor can look at your total financial profile and may be able to suggest other alterative investments that more meet your individual financial needs. |
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