Certificates of deposit (CDs) and other cash accounts are often considered to be safe, low-risk, guaranteed return — but “boring.” If you want your money to grow over the long term, putting it into CDs is generally not a good investment strategy. But sometimes, CDs can outperform riskier assets like stocks. That’s because individual stocks don’t always go up!
Sometimes, publicly traded companies run into trouble, encounter unexpected downturns, make bad decisions, experience bad luck, and otherwise burn through their shareholders’ money. This can make companies’ stock prices go down, not just over the course of one month or one day, but for years and decades at a time.
The volatility of stocks can be scary for investors. No one likes to lose money. Have you ever wondered if it’s “safer” and a better investment to buy CDs than to buy stocks? Sometimes, depending on the stock and the timeframe that you own that stock, companies’ stocks have delivered a lower ROI than cash.
Let’s look at a few stocks and ETFs that have been outperformed by CDs and cash — and what this means for your investment strategy.
What is the historical return of CDs during the past 20 years?
First, let’s clarify a few assumptions. It’s hard to calculate the historical investment return of CDs, because each CD’s APY (annual percentage yield) depends on the CD’s term, the bank, and more. But a general proxy for long-term cash investment yields is the U.S. 3-Month Treasury bill, which the best CD rates tend to match.
During the past 20 years, from 2003 to 2023, cash investments (as measured by U.S. 3-Month Treasury bills) generated an annualized rate of return of 1.3%. So for the purpose of this article, let’s assume that you put $10,000 into the best certificate of deposit in 2003, and you kept reinvesting your money into the highest-yielding CD you could find, over and over again. After 20 years, you would have a profit of $2,935 — before inflation and taxes.
That’s not good! This low rate of return on CDs happened because, for several years after the 2008 financial crisis and Great Recession, interest rates were near zero. The Fed just recently started raising interest rates aggressively during 2022. For example, as of Jan. 25, 2024, the best CDs were paying 5.30% APY. But for several years before 2022, you would be lucky to find a bank CD with 0.10% APY. Owning CDs wasn’t a good way to earn yield on your savings.
But even that meager rate of return is still a good deal compared to some investments that have actually lost money during the past 20 or so years. There are some surprisingly big names on this list — companies that you might have heard of in everyday life.
Here are a few stocks and ETFs that have delivered a lower ROI than cash, failing to return at least 1.3% per year, for extended periods during the past two decades.
1. The Kraft Heinz Company (KHC)
Kraft Heinz is one of the largest food and beverage companies in the U.S. It owns famous brands that make beloved products like Heinz Ketchup, Oscar Mayer hot dogs, and Kraft Macaroni & Cheese. But for several years, the company’s stock has been in steady decline.
If you invested $10,000 in Kraft Heinz Company stock on Dec. 31, 2015, as of January 2024 that stock would be worth $7,132 — a compound annual growth rate (CAGR) of –4.14%.
2. Paramount Global (PARA)
Paramount is a leading global media company that delivers premium content to billions of people; the company owns production studios, networks, streaming services, and more. You’ve probably seen movies with the Paramount logo; the company also owns CBS, BET, Comedy Central, and the Paramount+ streaming service.
But times have been tough for Paramount’s TV and movie businesses in the past few years. With pandemic-closed theaters and stiff competition from Netflix and other streaming services, Paramount’s stock price has taken a hit. If you invested $10,000 in Paramount’s Class B stock (PARA) on Dec. 31, 2005, that investment would be worth $8,804 today. That makes for a CAGR of –0.70%.
3. Deutsche Bank AG (DB)
If you didn’t know much about the stock market, you might think that a big German bank would have a big stock price. After all, Germany is one of the most economically powerful countries in the world, and banks always make money, right? What could go wrong?
Unfortunately for its investors, Deutsche Bank AG, Germany’s largest bank, has become one of the worst-performing stocks in the financial services world. The bank has been hit by a series of scandals and controversies, paying billions of dollars in fines and settlements that have damaged its reputation and its stock price.
If you bought $10,000 of Deutsche Bank stock (DB) on Dec. 31, 2002, as of Dec. 31, 2023 your investment would be worth $4,333 — adding up to a CAGR of –3.90%.
Lessons for your investment portfolio: Picking individual stocks can be risky, and no one can predict the future. Even big companies with well-known products can suffer years-long stock price drawdowns. Even if you think “this is a great company, it’s a big name, the stock price is sure to go up,” the company might underperform, or the entire industry could go into a downturn for complex reasons beyond your control. The market ultimately decides the stock price.
Bottom line: Don’t put all your eggs in one basket. Create a diversified portfolio of stocks, bonds, and ETFs, and you can avoid the risk of losing money — and the embarrassment of getting outperformed by safe, humble, “boring” CDs.
