Gone from concerned to scared? Sure you have. The events of the last six months or more have left all of us questioning our banks, our government, Wall Street, Main Street, our big businesses and our own advisors.

 So what are people doing? Well, it scares me to think about it, but a growing number are placing their money in CDs. Just like you, they want to feel secure – that their money is safe. However, this present sense of security could be very short-lived.  Let me share with you the high-cost of short-term stability:

 Although past performance is not indicative of future performance, inflation and taxes took a huge toll on the “real” rate of return for CDs over the past 20 years. Of the 20 years spanning 1988-2007, CDs earned a negative real rate of return 7 years. Of the 13 “positive” years, they earned less than 1% real rate of return 7 years, leaving just 6 with an actual positive rate of return. Let’s take a glance:¹

 You may recall a question I asked a few weeks back: When will be the last day of your life? I encourage you to think about this. Will it be 30, 40, 50 or even 60 years away? How long did your parents live? What is the average life span of someone your age with your health? What are your long-term goals?

 Next question, Will you need the money you saved to live off? The long-term average inflation from 1913 to 2007 was 3.42%.² Assume you need 4% of your investments for income each year. This means you will need to average 7.42% annual growth (without paying taxes) at the very least. 

 Last question: If you are invested solely in CDs, how long before you run out of money? We cannot let our emotions control our future. Just because we’re fearful doesn’t mean we need to plan on dying in 5 to 10 years just so we won’t run out of money.

 So what do you do? Where can you put your money and be able to sleep at night? Now is the time to discuss these questions. Over the past few months I have asked random individuals whether or not their advisor has been in contact with them. To my surprise…the answer more times than not is “no.” It is more important now than ever to speak with someone you trust about your present situation, future and feelings in relation to your money. Work with someone who has a disciplined process that can be applied to your unique situation in order to keep your risk level suitable to your situation and help plan your future. And if you question whether or not your interest is in the best interest of your advisor, get a second opinion!

 ^1. The CD rates are represented by the Lipper 6- month CD rate. CDs purchased for a longer period than 6 months can provide a higher rate of return. Sources: Invesco Aim; Morningstar, Inc; Lipper, Inc; Internal Revenue Service.

^2. Average Annual Inflation by Decade. ã 2008 InflationData.com