As the new year approaches, many investors are considering different options to diversify their portfolios and protect their assets. Two popular choices that are gaining attention are certificates of deposit (CDs) and gold investments. Both offer unique benefits and can help investors navigate the current economic climate. Let's explore the reasons why opening a CD in 2024 and buying gold could be advantageous.
CDs have long been a favored choice for individuals looking to earn higher interest rates on their savings. In the current high-interest rate environment, CD rates are significantly higher than just a few years ago. Compared to the average annual yield of 0.46% offered by traditional savings accounts, CD interest rates range from 4.60% to 5.55% depending on the term. While the average annual yield on a five-year CD is lower, it may be worth locking in this rate if interest rates are expected to drop in 2024. And considering that just two years ago, interest rates ranged from 0.05% to 1.18% on similar accounts, opening a CD now could be a smart move.
One of the main advantages of CDs is that they offer a safe way to grow your money. With a minimum opening deposit of at least $500, CDs provide a secure investment option for individuals with a decent chunk of cash from an inheritance, tax return, or another windfall. By depositing funds into a CD account with a fixed rate of return, investors can avoid market fluctuations and still earn a substantial amount of interest. For example, opening a 36-month CD account with a $10,000 deposit and a 5% annual yield would result in earning $1,576.25 in just three years.
Furthermore, CDs can act as a hedge against possible market volatility. While the stock market generally delivers higher returns over time, it also comes with a degree of risk. If investors are concerned about a potential decline in the market, a CD can offer a secure way to save money and reach financial goals. CDs offered through banks and credit unions are typically federally insured by the FDIC and NCUA, respectively, providing peace of mind to investors.
On the other hand, gold investments have gained popularity due to their ability to protect against inflation and diversify portfolios. Gold has long been seen as a hedge against inflation, and with rates remaining elevated, it could continue to be a valuable asset in 2024. Historically, gold has performed well during periods of high inflation, such as in the 1970s when its price climbed from $35 per ounce to $850 per ounce.
In addition to its inflation-hedging properties, gold investments offer potential tax benefits. Investors can purchase a gold individual retirement account (IRA) and grow their retirement nest egg tax-free or on a tax-deferred basis. Traditional gold IRAs allow for growth with pre-tax dollars, while Roth gold IRAs grow tax-free with after-tax dollars. SEP gold IRAs are designed for small business owners and self-employed workers.
Diversification is another advantage of investing in gold. It is said to have an inverse relationship with the stock market, meaning it can potentially perform well during stock market downturns. During the financial crisis from 2007 to 2009, for example, the S&P 500 lost nearly 57% of its value, while gold prices rose 25.5% over the same period. By adding gold to their portfolios, investors can potentially stabilize any drastic decreases in the financial markets.
Lastly, gold investments offer liquidity, making them a valuable asset for individuals heavily invested in assets that are not easily sold or exchanged for cash. Gold is considered a liquid investment, meaning it can be easily bought and sold. Physical gold bars and coins provide a tangible asset that can be kept in one's possession, while gold exchange-traded funds (ETFs) offer a more liquid option that can be bought and sold through a brokerage account. Gold IRAs also provide the stability of gold along with the tax advantages of an IRA.
In conclusion, both CDs and gold investments offer unique benefits that can help investors navigate the current economic climate. CDs provide a secure and high-interest rate option for individuals looking to grow their savings, while gold investments offer protection against inflation, diversification, and liquidity. As the new year approaches, it's essential for investors to evaluate their financial goals and consider these options to optimize their portfolios.
