Mar 18, 2024
Investing your money is one of the most effective ways to build wealth and save for long-term goals. But figuring out the best strategy for your money can feel daunting.
Juliet and her husband, both 80 years old, have managed to accumulate $250,000 in capital that has been held in a relatively vanilla instrument: certificates of deposit, also known as CDs.
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These are savings accounts that offer a fixed rate of return over a fixed term. Juliet’s term is about to end, so she called into The Ramsey Show to seek outside advice on other possible investment opportunities.
However, personal finance guru Dave Ramsey offered the couple from Greenville, South Carolina an unexpected strategy.
The safest option
Ramsey wasn’t keen on making modifications to the couple’s existing strategy. “I would go right back and renew that CD,” Ramsey told an audibly surprised Juliet. “You told me three times [already that] you didn’t want to risk it and I heard you.”
To be fair, Ramsey admitted that CDs are not exactly the most lucrative form of investing.
However, Juliet insisted she wasn’t keen on taking on any major risks or disrupting her routine, which led Ramsey to believe a CD was the safest option for the couple. “It’s not a very good long-term investment,” he said. “But it gives you a lot of peace.”
According to Bankrate, CDs currently offer annual percentage yields (APYs) ranging from 1.73% to 1.43% for 1-year to 5-year terms. By comparison, a 5-year government treasury bond offers a 4% yield while even a high-yield savings account could possibly offer even more.
Taking Juliet’s risk-tolerance into consideration is arguably a savvy move on Ramsey’s part. In fact, most savers and investors get more conservative with their investment decisions as they get older.
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In 2018, British researchers at the Henley Business School in Reading found a link between age and declining risk-tolerance.
For seniors, a safe and predictable financial instrument — such as a CD — is probably the most appropriate one. They won't need to bear market risk or expose their savings to the economic cycle.
However, Ramsey thinks some seniors with a higher tolerance for risk could implement a better strategy than Juliet and her husband.
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Generational investments
Ramsey believes that, at some point, people stop investing for themselves and start investing for the benefit of their children and grandchildren. People who can manage this shift in mindset can often handle more risk and deal with a longer timeframe on their investments.
“I’m 63 and I don’t have any CDs,” Ramsey revealed to Juliet. “All of mine is invested in mutual funds and the stock market. I’m comfortable with that risk. I can tell… that if you did that with your $250,000 you would be awake at night scared.”
Ramsey isn’t the only 60+ risk-taker. Warren Buffett is 93 years old and much of his wealth is still tied to a single stock: Berkshire Hathaway. He has previously claimed that 90% of his wife’s inheritance after his passing will be deployed in index funds with the rest held in cash.
Like Buffett and Ramsey, if you can plan ahead for your loved ones, your investment time horizon could be significantly longer.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
