Should I reinvest my CD money in mutual funds?

Stock Market Graphs - shutterstock_120658870Q: Should I do some­thing dif­fer­ent with my money? I have a CD Matur­ing for $30,000 and see­ing inter­est is so low, I was won­der­ing about invested it in a mutual fund. Which would you rec­om­mend? I am 93 years old and mainly inter­ested in preser­va­tion of my capital.

- Carl, Phoenix, Arizona

A: I under­stand where you’re com­ing from for sure, but – since you men­tioned preser­va­tion of cap­i­tal as your pri­mary inter­est – I’d prob­a­bly cau­tion you against what you’re think­ing.  Or at the very least, I’d want you to fully under­stand the risks asso­ci­ated with mov­ing from secure, guar­an­teed CDs to poten­tially volatile, market-driven mutual funds. That’s not to say that mutual funds in a case like this are a bad idea, they’re just a whole dif­fer­ent ball­game than what you’ve been playing.

Where to start
To be clear, funds do exist that have cap­i­tal preser­va­tion as their objec­tive.  They just can’t guar­an­tee they’ll be able to achieve that goal. Even if you went with some­thing like a high-quality, ultra short-term bond fund, your prin­ci­pal would still be at the mercy of the mar­kets. This means that in addi­tion to giv­ing your­self the chance to make more money, you could be putting your­self in a posi­tion to lose money as well. Granted, ultra short funds tend to be less volatile than short-term funds, short-term funds less volatile than inter­me­di­ate term funds, and so on and so on, but the value of any bond fund can still fluc­tu­ate day-to-day. Some­times those fluc­tu­a­tions result in you mak­ing money and some­times, those fluc­tu­a­tions are neg­a­tive and result in losses.  Also, even though the yield paid by the bonds inside these funds will at least par­tially off­set any prin­ci­pal losses that occur, there’s no guar­an­tee that you’ll end up in the black.

Where to fin­ish
So does all of this mean that mutual funds are a bad idea for you?  I’d need more infor­ma­tion before I could say for sure.  To get a more defin­i­tive answer, I encour­age you to con­tact a Finan­cial Advi­sor to dis­cuss your spe­cific sit­u­a­tion.  They’ll be able to gather the addi­tional infor­ma­tion nec­es­sary to help you decide if this is a good idea or not.  They’ll also be able answer any spe­cific ques­tions you have.

Thanks so much for your ques­tion and best of luck to you!


Share |

USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. The information is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional representation before acting on any information you may have found in this article. This article is in no way attempts to provide advice that relates all personal circumstances.

Examples given are hypothetical illustrations and not an indication of the benefits or features of any USAA product. You should seek policies and advice based upon your own particular circumstances. Sample loans are for illustration purposes only and are not a rate quote, pre-approval, or commitment to lend.

Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

USAA Financial Planning Services® refers financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Company in California, Lic. #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

USAA means United Services Automobile Association and its affiliates. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers. Banking products provided by USAA Federal Savings Bank. Credit cards provided by USAA Savings Bank. Both Banks Member FDIC.