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A Literal Translation of the New Testament






 

INVEST IN CDs AND LOSE?

 

 

I am not a financial money manager.  Although I was a financial and marketing analyst for a large corporation for many years.  This is entirely my own opinion and belief from my own personal experience. 

 

I know that many senior citizens lived through times like the great depression which began with the stock market crash in 1929 and lasted until the bombing of Pearl Harbor on December 7, 1941.  But for about nine years before the stock market crash of 1929 the national economy was in a deep recession.  And so now, after years of scrimping and training on how to live on almost nothing, senior citizens are justifiably conservative in their financial affairs.  But, the economy is not that bad now and hasn't been for decades.  

 

No CDs!

 

I believe many senior citizens have needlessly relegated themselves into living in a fixed income economic environment simply for fear of loosing the money they do have.  They typically have most all of it invested in ultra-low interest bearing CDs, which in today's economy 12, 24 and 36-month CDs can't break even with the rising costs of living, especially considering health care.  Consumer price indexes (CPI) from around the nation typically measure between a 2.5 and 3 percent increase in regional annual costs of living, against which 1% and 2% CDs can't make up the difference, nor provide an income.  This scenario makes CDs, as "safe" conservative investment hedge against the economy, a losing proposition and an actual drain on personal wealth.  

 

But CDs are highly marketed by the "professionals" at investment companies and banks because CDs are the most profitable revenue-earning tools of those companies.  When you walk in the door at almost any investment institution, the professional's first goal is to size you up as a possible CD investor.  Their first goal is to ascertain your level of fear of investing.  If you walk in and say "I'm very hesitant about investing, and want to know that my money will be safe", you've tipped your hand and played right into theirs.  You've told them you are loaded with investment fear and a good candidate to buy into their "CDs are the safest" line.  They will tell you or insinuate that anything else but CDs are risky and not for you.  How convenient it is for them that the only "safe" investments for you are the ones where they make almost all the money from your money, and you get almost nothing in return?  Doesn't that seem a little fishy to you?

 

CDs are not as much of a promise to pay you 1 or 2% interest on your hard-earned money as much as they are a contract you sign which locks you out of access to the profit your money makes over a specified period of time, in which you allow the investment company or bank to make almost all the profit on your money, for which they pay you back only about 1 or 2% as a reward for your investment ignorance, and foolish generosity toward them, which they no doubt heavily "encouraged" from you.  

 

The "professional's" investment CDs sales hype is dynamically sculpted to cater to anyone, but most urgently to fearful senior citizens, because Certificate of Deposit contracts (CDs) produce huge windfall profits for banks and investment institutions.  Investment institutions and banks deliberately try to steer investors away from investments which are more profitable for investors and less profitable for them.  "Professionals" know that they can find investments which will earn them 15, 20, 25+% interest, and they're looking to use as much of other people's money as they can to do it, while paying the least amount they possibly can back to the person for using their money.  This is how important CDs are to investment institutions.  

 

Mutual Funds to the Rescue

 

Mutual Funds which earn exponentially more interest than CDs, are actually safer than CDs when you consider one of the many goals of investing, the most foundational goal, to preserve your wealth, and then secondly, to increase your wealth.  But let's talk about preserving you wealth first.  

 

1.  Preserving Wealth

 

Many senior's lack knowledge of mutual fund investing because they're too tired or too lazy to read and study about investing.  It's always much easier to just sit back and let someone else spoon feed you with information you hope is truthful and in your best interests.  After all, they're the "professionals".  Right?  The "professionals" are counting on your ignorance and willingness to be spoon fed as their best hope of making the most money they can with your money.  We all fear taking bad advice and subsequently losing our money, especially seniors who fear losing the only money they have.  But, fear of investing is borne out of experience with human nature and ignorance of investment options.  

 

CDs generally don't keep up with the cost of living because the annual cost of living goes up year over year approximately 2-3%, which is reported by the annual Consumer Price Index (CPI) measurement taken in several major cities around the nation.  CDs in today's market generally pay between 1 and 2%.  So, putting your money in CDs and locking yourself out of using it to invest in more lucrative investments which are virtually as safe, actually erodes your wealth.  If you have a 36-month CD for 3% (that's good for CDs), and the annual cost of living has increased 3% each year, by the time your CD matures the money invested in the CD has lost 6% of its buying power because the cost of living has gone up 9% and you only received 3% on your money.

 

Most Mutual Funds are about 99.9% as "safe" as CDs.  The level of economic collapse which would be necessary to lose your money in a CD would need to be on the level of a Great Depression.  This is how safe CDs are.  But this serves as a good illustration to explain how safe most Mutual Funds are as well!  

 

A share of stock is a share of ownership of a single company.  With a mutual fund a unit is a share of ownership of a large group of companies, groups commonly in sizes of 50, 100 to over 1000+ companies.  A unit is to a mutual fund made up of multiple companies as a share of stock is to a single company.  A unit is generally the combined average value of one share of stock from each company in the group (fund).   If a certain mutual fund is made up of 100 companies, then averaging 100 hundred shares of stock using one share from each of the 100 companies, is the value of a unit.  

 

When a single company goes bankrupt, usually the value of any of its shares drops by 90 - 100% to become almost worthless.  When a company goes bankrupt in a 100 company mutual fund, the loss in value of a unit is almost unnoticeable, because the other 99 companies are still in business.   This is one of the reasons why mutual funds are virtually as safe as CDs.  

 

Another reason why many Mutual Funds are virtually as safe as CDs is because the companies in the fund are selected out of many various sectors, or categories of business.  An example of a sector is Telecommunications, which would include companies which are in the business of providing local telephone, long distance and wireless services.  Another sector is Health Care, which includes companies like hospitals, emergency care facilities, companies which provide chiropractic therapy, etc.  Other examples of sectors are Utilities, Air Transportation, Automotive, Banking, Biotechnology, Chemicals, Construction & Housing, Defense & Aerospace, Energy, Electronics, Environmental, Food & Agricultural, Gold, Home Finance, Industrial Equipment, Industrial Materials, and so on.  

 

The economic viability of sectors of our economy can become depressed, as Telecommunications has become over the last few years, because of trends in consumer buying and global competition.  An investment in a mutual fund which limits the companies in the fund to specialize in a certain single sector can have more risk than a fund of companies from multiple sectors.  But a single sector fund has the potential to produce a relatively higher return on investment for the same reasons, consumer buying trends and global competition.  

 

For example:  If only a handful of companies in the pharmaceutical sector make something which suddenly comes into high demand like a flu vaccine, then as seasonal demand causes the price of the limited supply of the vaccine to go up, and the companies presumably make more profit on the sale of the vaccine, then those who have invested in a sectored mutual fund made up of pharmaceutical companies are poised to receive a sudden increase in the rate of interest earned on their money invested in that fund.

 

2.  Increasing Wealth

 

Who wants to work their whole life, earn enough money to go out to eat once in awhile, maybe take a trip once a year or every few years, and afford the simple things in life which make it comfortable and enjoyable, then eventually become too old to work to make an income, and too poor to do anything but watch television, if that.  No one!  Then why put your money in CDs?  Putting your money in CDs virtually shuts off your ability to provide yourself an income from your money working for you.  In my opinion, putting money into CDs is a financial suicide investment approach in both the short and long terms for anyone, especially seniors who are no longer wage-earners and need to at least keep up with the cost of living, and additionally have enough money to enjoy their remaining years.  

 

There are a vast array of Mutual Funds available which are producing anywhere between 3 and 25% in the 1,3,5 year categories.  I've seen many Mutual Funds which are producing between 9 and 13% on average for the life of fund, year after year for the last ten years, through all kinds of economic ups and downs.  There is a plethora of Mutual Funds on the market which have been rock steady at producing 6 - 8% annual interest year after year, decade after decade.  Why not get out of those 1-2% CDs and get into a mutual fund which sends you a monthly check for 4 to 8 times more money, with virtually no more risk?

 

Do you think health care costs are going to continue to rise?  You bet!  Then why not invest in a health care sector mutual fund and get back some of the high cost of your health care in a monthly check?  For example:  How about investing in Fidelity's Select Medical Equipment and Systems Portfolio.  As of today, 11/12/2004, it has been producing an average annual interest rate of 16.81% since April 1998.  Its 5-year average is 18.02%, 3-year average is 12.98%, and its 1-year average for the last 52 weeks is 13.93%.  Wow!  Its produced an average of 16.81% over almost the last 7 years.  It has an overall Morningstar rating of 5 stars which is as high as you can get.  

 

The Morningstar rating reflects a measurement of both the risk level and return on investment of the fund over the life of the fund.  A 5 star rating (excellent) implies low risk and high return on investment, while a 1 star rating (poor) implies high risk and low return on investment.  Additionally, this fund has been selected as a Fund Pick by Fidelity's Strategic Advisors.  Additionally, its a no-load fund.  You don't need to pay anyone to put your money into it, transfer money between Fidelity funds, or take all your money back out of it immediately and get a check in the mail in 7-15 working days.

 

You may not have known about Mutual Funds before now because your broker or banker didn't tell or show you this, because they wanted your money to invest in this and put the interest in their pockets, and give you only 1 or 2% and tell you how nice and "safe" you are in CDs.  Safe from what?  Safe from losing what you've got, or safe from making any more money than what you've got?  There are many other Mutual Funds similar to this example from other companies as well.  Anyone with a personal computer can get online and go to investment company websites and look for Mutual Funds with 5 star ratings, which mean they provide a low risk to return on investment ratio.   

 

I believe Mutual Funds, such as the no loads offered through Fidelity investments, are actually safer investments than CD's, because ultra-low interest bearing CDs virtually guarantee your financial stagnation and erosion of wealth in today's economy.

 

I'm not pushing Fidelity Investments nor do I make any money for pushing them.  But it's a company I use.  They are one of many investment institutions which offer no load Mutual Funds, and I'm using their name here as only an example of what's available as a much better alternative to CDs.

 

Thinking only in terms of preserving wealth and not in terms of increasing wealth is thinking borne out of fear, which is thinking borne out of ignorance of investment opportunities.  Here's some knowledge to think about.

 

Using Fidelity Investments as an example:

 

All Fidelity investment options are “No Load” options, which means:

 

1.  No charge to open a mutual fund account.

2.  No charge to transfer money between Mutual Funds or any other investment options.

3.  No charge to close your accounts at any time and take your money back out of your investments and walk away.

4.  A mutual fund looses or gains value (99% gain value) based upon economic conditions.  There are thousands of mutual fund investment options available in the world today which have been earning on average between 6% and 16% since their inception over the last 5 to 20 years, in spite of the economic conditions we've experienced since 2001.  In fact, many of them have produced relatively greater earnings during the last three years than their life of fund average.  In order for Mutual Funds not to perform as well on average as they have been for the last three decades, there would need to be a severe economic downturn almost like the great depression, to drive mutual fund earnings potential down to the level of that of a CD.

5.  As the value of a mutual fund investment account grows, more shares/units are purchased with those earnings and automatically credited to the account fund.  All of the interest earned can be automatically reinvested into the account fund, or only some of it can be reinvested and a monthly check sent to the customer for the balance, at no additional charge for this.  Earnings going back into the account fund and automatically generate more interest earnings through compounding.

If you're a believer, young or old, some of the best insurance you have of apprehending a part of the more abundant life that Jesus Christ came to make available (John 10:9-10), the financial part, is what you do for yourself in recognizing and apprehending the opportunities which are already available around you.  The principles come right out of God's Word; ask, search and knock (Mat.7:7).  Look, study, get informed and then act on it.

 

Take a few minutes and call a few investment companies through their 1-800 toll and long distance charge-free numbers and discover for yourself that contrary to the marketing of some "professionals" CDs are actually not the economically safest investment option, but a financial stagnation and wealth erosion option.  Ask, "How safe are Mutual Funds, and how much are they earning?"

 

Fidelity Investments  1-800-343-3548

 

 

Think about it…

 

$125,000 invested in a 3% CD will earn $3,750 annually.

 

$125,000 invested in a 8% mutual fund will earn $10,000 annually.

 

 

Brother Hal Dekker