Last week I gave a very brief overview of what I believe are the three main ways to invest your money. To recap, with all the hundreds of thousands of ways to invest your money, I believe there are only three ways in which your money will work within each of these investments.
The three labels that exist today are:
Fixed Accounts
Variable Accounts
Index Accounts
Every single investment in the world will fit within at least one of these three categories.
Today, I’d like to talk about fixed accounts.
The features that most people view as negative within these types of accounts are that they are boring, predictable, and you will definitely not get-rich-quick.
The positive features within these types of accounts are that they are boring, predictable, and you will definitely not get-rich-quick!
I’ve read many articles bashing fixed accounts and discussing how you can do better in some other account. Unfortunately, history proves otherwise.
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For example, let’s compare the S&P 500, the Dow Jones, and fixed accounts over the past 10 years – from June 1, 2001 to June 1, 2011.
The Dow Jones grew an average of 1.703% per year – from 10,502.40 – 12,290.14.
The S&P 500 grew an average of 0.737% per year – from 1,224.38 – 1,314.55.
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Do you think you could have found a fixed investment within your retirement accounts over the last 10 years that averaged more than 1.703%? I know I could have.
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Let’s put some dollar amounts to this scenario.
Let’s say you invested $100,000 on June 1, 2001 into each of these accounts, and you just let your money sit. What would you have had in these accounts on June 1, 2011?
Dow Jones = $118,396.17
S&P 500 = $107,619.29
3% Fixed Acct. = $134,394.64
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Which one looks better to you?
My point in all this is that fixed accounts are not always a bad option, as some “gurus” would lead us to believe.
Obviously if we look at other dates in time our numbers would be different. For example, if we were to research the past 20 years, the Dow Jones and the S&P 500 did much better than fixed accounts – due in large part to the “dot com” craze of the 1990’s.
Conversely, if we look at just the past 4 years, fixed accounts demolish the Dow Jones and the S&P 500.
What’s going to happen in the next 4 years, 10 years, 20 years? Who knows!
But, in my professional opinion, there is a time and a place for every investment, and I believe there is a place in everyone’s portfolio for fixed accounts.
If you do would like some more information and learn more about all your options, feel free to contact me anytime.
*The articles and information on this blog are for education and entertainment purposes only and should not be taken as financial or legal advice. I understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, therefore some of the information posted may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.