Index Based CD’s

Hi Terry,

I will be retiring soon and won’t need the money form my 457 account for several years. I’m interested in preserving my principal and recently heard of Index Based CD’s which are apparently sold through banks. Do you recommend them? Tying up the money for a number of years won’t be a problem.

Terry Says:  These are investment products sold in the investment department of banks.  Don’t be confused.  Second, I have always opposed this idea because these products typically do not give you the full benefit of the index to which they are matched. For example, they may give you the gain, but NOT the dividend income.  (And since dividend income on the S&P has accounted for roughly 40% of the growth of the S&P over the long run, you don’t want to miss out on the dividend return!)   Or they come up with contrived beginning and ending points that make it difficult for you to reap the gains to which you are entitled.  And/OR they have penalties for early withdrawal that eat up all but the minimal guaranteed returns.  All in all, I would avoid indexed CDs — They make the banks rich, but not YOU!

What you do need is a good financial plan for both investing and withdrawing your money through your anticipated retirement.  My best suggestion is to go to www.TRowePrice.com and ask about their retirement income advisory service, and you can also do the same process through Vanguard or Fidelity.  They can give you diversified investments and a withdrawal plan, without charging big commissions and fees along the way.