Certificates of deposit (CDs) have a few great benefits. They’re safe, with no risk of losing money. They allow you to lock in a fixed interest rate, and rates are high right now. Some of the best CDs are currently offering rates above 5.00%.
But if you’ve been thinking about using CDs for your retirement savings, you should reconsider. CDs work well for short-term savings. For long-term savings (anything that’s more than five years away), there are investments that will likely make you more money.
1. S&P 500 ETFs
Exchange-traded funds (ETFs) are funds you buy and sell on stock exchanges. They invest in a bundle of securities, such as stocks.
An S&P 500 ETF invests in the stocks that make up the S&P 500, an index of 500 of the largest publicly traded companies. This type of ETF is a popular investment because of its growth potential — the S&P 500 has an average return of about 10% per year dating back decades.
You save a lot of time investing in an ETF, as it does most of the work for you. There’s no need to pick out stocks yourself. You just buy more shares whenever you want.
Another benefit of S&P 500 index funds is how cheap they are. Many of them have expense ratios (fees) of just 0.02% or 0.03%. That’s about as low as it gets for investment funds.
2. Target-date funds
ETFs can save you a lot of time with investing. But if you want to make it even easier, you could put your retirement savings in a target-date fund.
A target-date fund selects investments based on a specific retirement year. For example, if you want to retire in 2050, you’d pick a 2050 fund.
It will start out by investing your money heavily in stocks to maximize growth while retirement is still decades away. As it gets closer to the target retirement date, the fund will shift money to stabler investments, such as bonds.
Most 401(k) plans have target-date funds, so if you have a 401(k), you may have already seen this option. You can also invest in target-date funds through many of the top stock brokers.
3. REITs
Stocks and real estate are two of the most popular and historically proven investments. Real estate investing doesn’t need to involve flipping houses or buying rental properties.
You could invest in real estate investment trusts (REITs). These are companies that own income-producing properties. What makes them special is that most are bought and sold in shares on exchanges, just like stocks, so it’s easy to invest in them.
REITs are also excellent investments for growing your retirement savings. In fact, REITs have outperformed the S&P 500 over the last 50 years. From 1972 to 2023, REITs had an average annual return of 12.7% compared to 10.2% for the S&P 500, according to analysis by The Motley Fool.
4. Real estate
There’s also the more traditional form of real estate investing — buying properties to either rent out or fix up and sell. This won’t be the right choice for most investors. It requires significant start-up capital and knowledge, and it’s time-consuming.
But if you have the means, knowledge, and time, then investing directly in real estate could be worth considering. Notably, it allows you to use leverage, financing a purchase with an investment property loan. While this increases risk, it’s also how some real estate investors have been able to generate impressive returns.
Finding the right place for your retirement savings
CDs are one of the most conservative investments. That’s ideal for money you’ll need in the next few years. When the goal is building long-term wealth for retirement, you probably need investments with more growth potential.
S&P 500 ETFs, target-date funds, REITs, and real estate all fit that description. Historically, investments like these have returned over twice as much as CDs, making them much better-suited for your retirement savings.
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