CDs rarely good choice for young people
Q: I’m in my 20s and contributing to a 401(k) plan, but should I invest additional money in CDs, too? — G.J., Wilkes-Barre, Pennsylvania
A: For most young people, CDs are not great investments — at least in the current environment of ultra-low interest rates. Even the best CD rates these days (which you can look up at bankrate.com) are puny. If you know you won’t need a sum of money for at least five years (and to be more conservative, 10 years), it’s likely to grow more briskly in stocks. Stocks have outperformed bonds in most years.
Five-year CDs, for example, recently sported an average rate of 2.2 percent. On a $10,000 investment, you would collect $220. Two-year CDs averaged about 1.6 percent, or $160.
You can get more income for your money from dividend-paying stocks. Verizon Communications, for example, recently sported a dividend yield of 5.2 percent (its annual dividend sum divided by its recent stock price). General Motors and Pfizer both yielded 3.6 percent, while Royal Dutch Shell yielded close to 6 percent.
Dividends are never guaranteed, but many companies have been paying them regularly — and raising them — for decades. Plus, on top of the dividends, the stock prices of healthy and growing companies will increase over time, too. CDs are good for short-term money, and for when you favor safety over growth.
Fool’s School: Day trading
Are you planning to get rich by jumping into and out of lots of stocks many times during a day, and racking up gobs of small gains? If so, you’ll be day trading —and you’ll probably lose much of your money.
Day trading can look like investing, but it’s really gambling. Day traders tend to spend hours glued to monitors, watching stock-price graphs, placing scores of orders each day and holding each stock for a few minutes or hours. They often ignore company fundamentals (such as revenue growth rates, profit margins and debt levels) and might not even know what the companies do. They face headwinds such as trading costs that add up and shortterm capital-gains tax rates, which tend to be higher than rates for long-term gains.
A study by the North American Securities Administrators Association suggested that some 70 percent of day traders "will almost certainly lose everything they invest."
The Securities and Exchange Commission has warned against day trading, saying, "Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status." It also noted that many day traders use borrowed money (buying stocks on "margin"), magnifying risks and making it more possible to lose all their money and even end up in debt.
The SEC urges investors to not believe claims of easy profits and to understand that many sources of hot tips have been paid to offer those hot tips.
Those who’ve made the biggest killings in day trading might be the ones who run day-trading firms, providing day traders with trading equipment and charging commissions per trade.
Name that company
I trace my roots to 2000, when I began above a pizza shop in Massachusetts. In 2002, I debuted an index ranking travel properties by popularity. For a while, I was part of Expedia, but I was spun off in 2011. Today, I’m proud to call myself the world’s largest travel site, as I sport more than 570 million traveler reviews of more than 7 million lodging accommodations, restaurants, attractions and more. I offer booking services and also manage sites such as jetsetter.com, seatguru. com, vacationhomerentals. com, citymaps.com, cruisecritic.com, thefork.com and airfarewatchdog.com — among many others. Who am I?
Last week’s answer
I trace my roots to 1902, when tobacco companies in two countries joined forces. I was exporting 25 billion cigarettes annually by 1915, and 500 billion by 1976. For a while, I was very diversified, owning paper, cosmetics and food businesses and even the Saks Fifth Avenue retailer. Today, I’m the world’s largest publicly traded tobacco manufacturer. ( Answer: British American Tobacco)