From time to time, Magnifina staff makes quotes to the media. Below is a list of known usages and the original context with which the quote was given. Some quotes are altered with permission, some are cropped with permission, and some are altered without permission or used out of context.
Every investment is a risk/reward trade-off. CDs are a single step up from savings accounts in terms of both risk and reward. The increased risk is because a CD must be held to its maturity whereas savings accounts allow withdrawals at any time.
CDs are widely recognized as one of the safest investments. Their valuation is highly predictable for both the investor and issuer. Additionally, they are insured by the FDIC which eliminates credit risk for the investor.
Neither CDs nor savings accounts are good investments when interest rates are lower than inflation. In this environment, nominal investments tend to underperform real investments. Today, inflation risk significantly outweighs credit risk and most investors should look at securities with more upside potential than CDs.
Quote provided as background
In an inflationary environment, it’s best to avoid nominal assets in favor of real assets. Nominal assets, such as CDs and bonds, are priced based on fixed cashflows. Therefore, they have a limited upside which doesn’t fully protect against inflation. Real assets, such as stocks and real estate, have prices which may vary feely. If prices rise across the economy, real assets should hold their relative value. In other words, nominal assets have fixed numbers (such as an interest rate) built into the instrument, while real assets are priced entirely by the market.