CDs and Risk Tolerance

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Are CDs a good choice for someone with a low risk tolerance?

CDs and Risk Tolerance

All investors are not created with an equal risk tolerance. For some investors, high risk is the only way to go when investing their money. Other investors crave safety and are willing to take almost stagnant returns in exchange for the assurance that they won't lose out on any principal.

In general, the more you're willing to risk losing, the better return you can get on your investment. That's what high-risk investments are all about--a higher risk of loss in exchange for a higher possible return. The less you're willing to risk losing, the lower your overall return will be, but the more likely you are to actually have your principal and some return to show for your investment.

CDs (no matter what the CD rates) are low-risk investments. They offer a low, fixed return over a defined period of time. They're a great tool for investors who can't stomach the daily seesaw of the Dow Jones Industrial average, and they can really help ensure that pre-retirees don't lose their retirement nest egg right before (or during) retirement.



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