Dedicated to Deposits: Deals, Data, and Discussion

Why We Invest in Insured CDs and Savings Accounts

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A reader sent me the following commentary on "Why we invest in secured CDs/Savings." I try not to get into the debate of stocks vs. CDs. Both have their place for savers/investors. I think it's important to keep diversified and to make sure your investments are appropriate for your goals and time horizons. As the reader points out below, stocks can be riskier than you might think.

Why we invest in secured CDs/Savings
-09/09/08

Stocks with a nice juicy yield are certainly an attractive investment - until you lose all of your hard earned money. Fannie Mae (FNM) and Freddie Mac (FRE) were paying nice dividends and good yields for years. Now the American flagship stocks are virtually worthless. On Monday, 09/08/08, both stocks lost 80+ percent of their value in 1 day!! Apparently, the government bailout didn't apply to common stock holders, last year the stock was worth $60 per share but today is worth only one greenback ($1). Is now the time to buy? Most analysts do not believe so. The U.S. goverment has taken control of Fannie and Freddie and no one knows for certain what the future holds for the common stock holders - however, given the current stock price, I think the writing is on the wall. RIP.

Thanks to the reader who provided this article.

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Comments
3 comments.
Comment #1 by Mario (anonymous) posted on
Mario
Thanks for the interesting article. Of course the stockholders will not be bailed out - they bear the risk of the company, that's why they get to enjoy the juicy yield during better times. Those with a capital guarantee will get bailed out first - bond holders, creditors, customers, preferred stock holders.

Henry Paulson (Treasury Secretary) even alluded to this in his press conference, stating that effective immediately, Fannie Mae and Freddie Mac will no longer be operated in a way to maximize shareholder profit but to maximize the benefit of taxpayers. I think the huge loss of share value today was a reaction to this change.

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Comment #2 by Anonymous posted on
Anonymous
Stocks wouldn't be half bad but most people have no ability to sell.

They go down with the ship.

This is the same paralysis that makes them look smart when a stock goes up over longs period of time.

Its rarely smarts.

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Comment #3 by Anonymous posted on
Anonymous
Whazz Upppp? Not Freddie or Fannie. True, True.

1