Carol pointed out an ad in this week's Gazette by Compass Financial Federal Credit Union (headquarters, Medley, FL) which trumpets "Grow Your Savings" and features a "Special 15 month CD 1.10% APY" with a "Minimum Deposit of $25,000."
The Inflation rate for the 12 month period ending October 31, 2014 was 1.7%. If that should be the rate going forward, then there would be a negative actual return on that CD of -.4%. But that's not all.
The 1.10% that the CD would "earn" is subject to the income tax. Let's assume one is in a 25% bracket. After taxes, then, the rate is .825%.
Now add in the inflation, and the negative return is -1.225%.
If one hides the cash in his mattress, the negative return is -1.7%, so there is a bit of an advantage to the CD.
But you are hardly growing your savings.
Thus, the stock market booms. Vanguard's 500 Index Fund (VFIAX) returned 16.81% for the 12 month period ending November 30, 2014.
Our nest egg is invested 60% in stocks and 40% in bonds. Even our trusty investment adviser is now suggesting we increase the allocation to stocks, because the fixed-income sector is paying so poorly and the equity sector so well. He's late to that party, obviously. Does his arrival presage a stock market bust?
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