How a High Rate CD Account Can Dramatically Alter Investment Portfolio Risk

M.Sage — Tue, 24 Nov 2009 02:11:59 +0000

Did you know that a high rate CD can be an important part of your retirement portfolio? Did you know that combining a high rate CD with your retirement stock portfolio can substantially improve the risk/return profile of your holdings? Adding a High Rate CD Account Reduces Risk It’s true. Adding a low/no risk fixed income asset like a fully insured high rate CD (or portfolio of smaller CDs to ensure they have FDIC coverage) can dramatically alter the shape of your risk/return profile of your retirement nest egg. The beauty of adding a fixed income high rate CD (sponsored CD link) is that it sets a base-line return for a zero risk investment – which when combined with a portfolio of risky assets (stocks, ETFs, mutual funds, etc.) it creates a flat sloped line between zero risk (the risk free asset) and your optimized / efficient portfolio of risky assets. A typical portfolio of risky assets (even when perfectly / efficiently balanced) will have a long curve which typically ends somewhere around 6-8% standard deviation (risk level – meaning 95% of the time your portfolio results will be X +/- 12-16% – 2xStandard deviation). Given that typical stock market [...]

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How a High Rate CD Account Can Dramatically Alter Investment Portfolio Risk