Expert: Doug Ingram - 10/12/2007

Question
Hello Mr. Ingram:

The advice I have read states that one should have a 50-50 mix of stocks and bonds when starting retirement.  The rate of return on many bonds is 3%-4%.  My bank typically offers CD's with similar rates and no fee/risk.  Am I missing something?  Does the bond offer something above and beyond it's yield?  It seems like a better deal to go with the risk free bank CD even if the rate might be a few tenths of a percent lower.

Answer
In this case you are correct that CDs are a good surrogate for bonds.  They may at times outperform bonds.
There are two main differences.
The bonds can be out to 30 years or so in maturity and can appreciate in value.
The CDs are typically much shorter term and you have to be very careful not to have total exposure (investment) in any one bank for more than the FDIC insurance.  
That is, if a bank were to fail, you would not want your total of checking, savings, and investments to exceed the FDIC insurance.
Most people just spread the money around to a few different banks if that's a problem.