Free Wealth Management Guide Retirement Planning: What You Need To Know | Page 4

CD vs. Stock and Bond Indexes
If one is able to tolerate volatility in their investments,
they are more likely to enjoy greater wealth over
time than if they invested in typical bank certificates of
deposit (CDs). The basic concept here is that generally, as
risk increases, so does the potential for higher returns.
The chart below compares two investment scenarios. In
each scenario, $1 million was deposited on October 1st,
2002 and annual distributions of $30,000 were made for
ten years. Scenario One represents investment in certificates of deposit. Scenario Two represents investment in a
basic portfolio allocated 60% to the S&P 500 Stock Index
and 40% to the Barclays Aggregate Bond Index.

From October 2002 through October 2012, the CD’s
provided a cumulative return of 24.51%. The stock and
bond indexes returned a cumulative of 109.63%. The
ending value of the CD after 10 years was $876,012.30.
The ending value of the indexes after 10 years was
$1,605,339.23.
As you can see below, from 2002 - 2012, the indexes
experienced extreme volatility. In 2008, the worst year in
the stock market since the Great Depression, the combined indexes lost 20.80%. However, even with this large
loss, the stock and bond indexes still provided an average
annualized return of 7.68% over the ten-year period and
ended with $729,326.93 more money after 10 years than
the certificates of deposit.

Scenario One: Certificates of Deposit
Time Horizon
10/01/02
01/01/03
01/01/04
01/01/05
01/01/06
01/01/07
01/01/08
01/01/09
01/01/10
01/01/11
01/01/12

-

12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
09/30/12

Beginning Value

Withdrawals

Ending Market Value

Cumulative Return

$1,000,000.00
$973,619.11
$954,772.47
$939,627.35
$942,806.86
$961,875.35
$983,411.20
$982,756.40
$958,216.22
$931,186.21
$903,982.65

$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00

$973,619.11
$954,772.47
$939,627.35
$942,806.86
$961,875.35
$983,411.20
$982,756.40
$958,216.22
$931,186.21
$903,982.65
$876,012.30

0.37
1.15
1.57
3.56
5.25
5.40
3.01
0.56
0.31
0.30
0.22

%
%
%
%
%
%
%
%
%
%
%

Scenario Two: 60% S&P 500 Stock Index, 40% Barclays Aggregate Bond Index
Time Horizon
10/01/02
01/01/03
01/01/04
01/01/05
01/01/06
01/01/07
01/01/08
01/01/09
01/01/10
01/01/11
01/01/12

-

12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
09/30/12

Beginning Value
$1,000,000.00
$1,027,451.85
$1,187,654.89
$1,255,644.34
$1,276,081.19
$1,387,654.08
$1,447,683.11
$1,118,286.03
$1,299,432.29
$1,424,946.60
$1,466,647.98

Withdrawals
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00
$30,000.00

Ending Market Value
$1,027,451.85
$1,187,654.89
$1,255,644.34
$1,276,081.19
$1,387,654.08
$1,447,683.11
$1,118,286.03
$1,299,432.29
$1,424,946.60
$1,466,647.98
$1,605,339.23

Cumulative Return
5.92 %
18.64 %
8.30 %
4.04 %
11.16 %
6.52 %
-20.80 %
19.00 %
12.03 %
5.06 %
11.50 %

The Barclays Capital Aggregate Bond Index is a broad base index and is used to represent investment grade bonds being traded in the United States. The S&P500 is a stock market index
based on 500 of the top common stocks traded in the United States. Performance data quoted represents past performance. Past performance does not guarantee future results. The
investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current perfor
mance may be lower or higher than the performance quoted. Asset class performance returns do not reflect any management fees, transaction cost or expenses. Asset Classes and Indexes
are unmanaged and one cannot invest directly in an Asset Class or Index. Inception Date refers to the date of First Public Offering. 5 Years, 10 Years and Since Inception (FPO) Returns are
annualized. *Date of First Public Offering. The 90-day CD index measures total return equivalents of yield averages. The CD rate is a rotating sample (collected by the New York Federal
Reserve Bank) of five banks and dealers surveyed daily.

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