Why Peak CD Rates Don't Beat Diversification

April 08, 2024

Interest rates are much higher than they used to be.

I’ve drawn attention to this several times: here and here.

Does this mean that CDs, Treasury bills, and money markets are the best place to allocate most of your money?

After all, with a potential 5% return and minimal risk, why look elsewhere?

The above chart from J.P. Morgan Morgan Asset Management showcases the problem with this kind of thinking.1

In the past, peak CD rates have often underperformed on a total return basis compared to other investment options like stocks, bonds, and a 60/40 mix between the two.

Not only have CDs underperformed, but these other investment options have averaged twice as much return during those periods.

Should investors take advantage of higher rates in conservative investments?


Should investors stop investing in stocks and bonds?


Short-term investment goals like emergency funds or needing a down payment on a house soon typically benefit from utilizing safer investments for preservation of principal, especially in a higher interest rate environment.

Long-term investment goals like retirement planning and investment management for the future normally benefit from riskier options like stocks and bonds for potential growth.

Market cycles are inevitable, with interest rates fluctuating, stocks experiencing bull and bear markets, and the economy going through ups and downs.

In other words, remember investing fundamentals regardless of trends.

You can make poor long-term financial decisions with aggressive and cautious strategies. Caution does not always equal good judgment.

Wise investors don’t just chase the hottest stocks on their newsfeed or the highest interest at a bank.



1. JP Morgan's "Guide to the Markets", page 66. March 31, 2024. Accessed online: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/