CDs vs. Dividends

Q I’m in my 20s and contributing to a 401(k) plan, but should I invest additional money in CDs, too? — G.J., WilkesBarre, 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 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. *** Q What is “Nasdaq”? — W.K., Chandler, Arizona A Created in 1971 as the National Association of Securities Dealers Automatic Quotation system (NASDAQ), it’s now the largest electronic stock market in America. Shares of more than 3,600 companies (including Apple, Costco, Facebook, Microsoft and Starbucks), with a total market value approaching $10 trillion, are traded on the Nasdaq. Learn more at nasdaq.com.