A can't lose strategy for the stock market? on clarkhoward.com

A recent item in Money magazine spotlights a way to get back in the stock market that is guaranteed not to lose money. This "can't fail" formula comes courtesy of an anonymous financial planner who writes under the guise of "The Mole."

Let's say you're starting out today with $10,000. You take two-thirds ($6,600) and pop it into a 10-year CD, which earns around 4.25% today. The remaining one-third of your money ($3,400) is then used to buy an index fund like the Total Stock Market index or the S&P 500. Clark particularly likes the former investment choice.

10 years from now, your CD will mature and be worth $10,007. So even if the value of every company in your index fund goes to zero -- a highly unlikely scenario -- you still haven't lost a single penny.

This is guaranteed not to lose, with the upside that you have one-third of your money available to potentially grow in the stock market. Commissioned salespeople sell indexed annuities that do the same thing, but they have very high fees.

Of course, this is a far more conservative approach than Clark would usually recommend. Yet it could be a good way for you to get back in the game if you're paralyzed with fear about the market.

So many of us are in fact fearful of the market right now. Syndicated financial writer Humberto Cruz recently reported that the advice you've so often heard from Clark and so many others -- that if you're investing for 10 years or longer, you want to be in stocks -- is unexpectedly faulty if you consider the past 10 years.

If you put $10,000 in an index fund 10 years ago, today it would be worth $8,705. But you've got to realize that's virtually never happened before; even during the Great Depression, people did better in the stock market than they did during this last 10 years.

What others are saying

Stock Market
I am a long term investor and feel that this stock market crisis is an excellent opportunity to buy. Even Warren Buffet says " you want to buy straw hats in winter". The US markets will come out of this stronger than ever before. Stay focused on the big picture. Just look at the S&P 500 since 1929. It has a strong uptrend and currently are very close to support.
By HP @ 02/28/09 09:01:57 PMreport abuse
interest rates
Have I made a mistake by opening a checking account that pays 5.01% apr interest on the average balance monthly? It used to be 6.01% but was lowered last month. It does have stipulations such as 10 tranactions a month, and a direct deposit or bill pay, but has a limit of $25000 on the balance to collect full interest. We have 2 banks in our town that do this. 1st Banking Center of Burlington and Community State Bank. Is this an oddity or a bad investment?
By Tom @ 02/28/09 04:59:50 PMreport abuse
this is a losing strategy
look at this web page from the fed: http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&width=1000&height=600&preserve_ratio=true&s[1][id]=AMBNS

your 10k will be worth $2500 or less in purchasing power in 10 years.
By Surf @ 02/01/09 04:29:27 PMreport abuse
cd rates
Clark posted a story on "can't lose strategies" for money. WHERE IS THERE A 4.25% CD???? Find it and I"ll invest!!
By marlene @ 01/27/09 09:43:28 AMreport abuse
economy
It's time we quit placing the blame on others and that includes President Bush. We have become a spoiled & wasteful nation. Wanting houses, cars, etc we could not afford and expecting funding from others. If our country had not pulled together during WWII we would all be speaking German. We are in similar times with financial vulnerability. If we don't let the leaders of this country know that we are not in favor of this spending plan we can look @ Zimbabwee and see our future with the value of our money. We may all be living in huts. Lets take responsibility and bring our leaders back to reality. They were elected to represent us. If we don't receive this representation we may need another Boston tea party which took place because of taxation w/o representation!!
By Carolinacrowe @ 01/26/09 10:59:09 PMreport abuse
Retirement?
What's that??? Because I wasn't smart with money, I'll be working until I'm 80 years old....if I live long enough....
By Kim @ 01/26/09 05:12:59 PMreport abuse
obamanomics
look at the criminals obama has appointed to his cabinet from the clinton years.he did this because he does not know what he is doing.IRS ring a bell?
By Jan @ 01/26/09 03:02:44 PMreport abuse
Just one example
Speaker of the House Nancy Pelosi boldly defended a move to add birth control funding to the new economic "stimulus" package, claiming "contraception will reduce costs to the states and to the federal government."
By Amy @ 01/26/09 02:25:16 PMreport abuse
I am amazed at how everyone wants to point at Bush. Have you not figured out that if Americans hadn't tried to keep up with the Jones we wouldn't be in this mess. People don't live on less than they make and save some for later. We have to many people making a profession out of welfare. If you don't pay taxes you shouldn't be allowed to vote on how someone else's money is spent. How much of my money paid for the Inauguration? And now the government wants to totally resod the Mall where all those people trashed it. How did they get off work? I had to work to pay for Obama's big day! Bottom line is we have never seen anything like this in history except other top nations that get greedy and then fall. Quit looking for get rich quick or hand outs and start eating beans and rice and get your personal house in order. Be responsible for your own actions, get debt free and then save for yourself
By barb @ 01/26/09 02:22:29 PMreport abuse
typo
criticism
By Amy @ 01/26/09 02:21:56 PMreport abuse
Obama's stimulus plan
The critism of P-BO's plan has more to do with the plan than the fact that he is a Democrat.
By Amy @ 01/26/09 02:20:59 PMreport abuse
Bush-bashing
Bush isn't President anymore, get over it, it's P-BO's turn. And to the standard liberal talking point comeback about give P-BO a break - why? What chance or break did the Libs give Bush, none. Plus, Obama said he was ready during the campaign, so now the Libs are saying give him a break, he's inexperienced.....give me a break.
By Amy @ 01/26/09 02:16:53 PMreport abuse
too much time
If you could get a one or two year cd at that rate, that plan would make sense for those who do not want to risk principal. Ten years is too risky.
That said,the fact that the last ten years has been a loser for stocks is considered an anomaly by Clark and others, just because it has "virtually never happened before." But there is something else that has never happened before and that was America's post-war rise to economic dominance. That event is not going to happen again, and any consideration of past stock returns must consider that boom. Another magazine, forget which, made the analogy to an individual company, Microsoft. Microsoft's past share performance includes its initial boom years. No one would buy their shares now and expect a repeat of that rise to market dominance. Same with the American economy as a whole.
By postprime @ 01/26/09 11:45:13 AMreport abuse
I agree with Sam below
The flaw in Clark's logic is time value of money. 10k today is worth 13k in the future, so if you only have 10k in the future, you have, in fact, lost money.
By Kristopher @ 01/26/09 08:41:09 AMreport abuse
Returns
How many people do you know who bought the S&P 500 exactly 10 years ago, held the entire 10 years without buying or selling any shares? Probably no one which means that Clark's example is a little deceptive. Most people have been dollar cost averaging the S&P 500 index through their 401K plans so their returns are not going to be as bad as the example Clark gave.
By Denny @ 01/25/09 07:28:02 PMreport abuse
Really bad advice Clark
Any investment linked to the purchasing power of the U.S. dollar is a sure loser. The crazy deficit spending and outright money printing by the Federal Reserve mean that inflation is baked into the cake and our dollars will purchase less and less in coming years.

Buy real things if you want to preserve your wealth -- land, precious metals, collectibles, guns, ammo, booze -- you get the picture.
By Sam's not my uncle @ 01/25/09 06:17:32 PMreport abuse
Odd
How can anyone talk about Obama when we just got thru with 8 years of the bush mess. By the time Bush and his stealing cronies got thru the nation was bankrupted and the poor got poorer while the rich hoarded their money.

Even if Obama does nothing it will be 10 times better than the Bush legacy.
By Tonya @ 01/25/09 09:45:43 AMreport abuse
Inflation
Putting money in a 10 year CD makes no sense whatsoever. When the Democrats get done "spreading the wealth around", the dollar will become a joke. As an economist I am only too certain that we are heading into a period of hyper inflation. Ten years from now you will be paid back with a dollar that may be worth only 17 cents.

There is only one way to protect ourselves from Obama and the socialists in Washington. Gold baby!
By Buzz Gee @ 01/24/09 01:46:36 PMreport abuse
Money Mag
If returns are even worse than the depression, why does Clark want us in the market? I say things have changed. For many reasons the markets will be "dead" for a good number of years. Probably until the baby boomers are well into retirement, and dying off.
By Vic @ 01/24/09 01:09:46 PMreport abuse
Article in Money Magazine.
If I'd written that article for Money Magazine, I wouldn't put my real name on it either.
By Leroy @ 01/23/09 07:49:21 PMreport abuse

Stock Market

I am a long term investor and feel that this stock market crisis is an excellent opportunity to buy. Even Warren Buffet says " you want to buy straw hats in winter". The US markets will come out of this stronger than ever before. Stay focused on the big picture. Just look at the S&P 500 since 1929. It has a strong uptrend and currently are very close to support.

By HP @ 02/28/09 09:01:57 PMreport abuse

interest rates

Have I made a mistake by opening a checking account that pays 5.01% apr interest on the average balance monthly? It used to be 6.01% but was lowered last month. It does have stipulations such as 10 tranactions a month, and a direct deposit or bill pay, but has a limit of $25000 on the balance to collect full interest. We have 2 banks in our town that do this. 1st Banking Center of Burlington and Community State Bank. Is this an oddity or a bad investment?

By Tom @ 02/28/09 04:59:50 PMreport abuse

this is a losing strategy

look at this web page from the fed: http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&width=1000&height=600&preserve_ratio=true&s[1][id]=AMBNS

your 10k will be worth $2500 or less in purchasing power in 10 years.

By Surf @ 02/01/09 04:29:27 PMreport abuse

cd rates

Clark posted a story on "can't lose strategies" for money. WHERE IS THERE A 4.25% CD???? Find it and I"ll invest!!

By marlene @ 01/27/09 09:43:28 AMreport abuse

economy

It's time we quit placing the blame on others and that includes President Bush. We have become a spoiled & wasteful nation. Wanting houses, cars, etc we could not afford and expecting funding from others. If our country had not pulled together during WWII we would all be speaking German. We are in similar times with financial vulnerability. If we don't let the leaders of this country know that we are not in favor of this spending plan we can look @ Zimbabwee and see our future with the value of our money. We may all be living in huts. Lets take responsibility and bring our leaders back to reality. They were elected to represent us. If we don't receive this representation we may need another Boston tea party which took place because of taxation w/o representation!!

By Carolinacrowe @ 01/26/09 10:59:09 PMreport abuse

Retirement?

What's that??? Because I wasn't smart with money, I'll be working until I'm 80 years old....if I live long enough....

By Kim @ 01/26/09 05:12:59 PMreport abuse

obamanomics

look at the criminals obama has appointed to his cabinet from the clinton years.he did this because he does not know what he is doing.IRS ring a bell?

By Jan @ 01/26/09 03:02:44 PMreport abuse

Just one example

Speaker of the House Nancy Pelosi boldly defended a move to add birth control funding to the new economic "stimulus" package, claiming "contraception will reduce costs to the states and to the federal government."

By Amy @ 01/26/09 02:25:16 PMreport abuse

I am amazed at how everyone wants to point at Bush. Have you not figured out that if Americans hadn't tried to keep up with the Jones we wouldn't be in this mess. People don't live on less than they make and save some for later. We have to many people making a profession out of welfare. If you don't pay taxes you shouldn't be allowed to vote on how someone else's money is spent. How much of my money paid for the Inauguration? And now the government wants to totally resod the Mall where all those people trashed it. How did they get off work? I had to work to pay for Obama's big day! Bottom line is we have never seen anything like this in history except other top nations that get greedy and then fall. Quit looking for get rich quick or hand outs and start eating beans and rice and get your personal house in order. Be responsible for your own actions, get debt free and then save for yourself

By barb @ 01/26/09 02:22:29 PMreport abuse

typo

criticism

By Amy @ 01/26/09 02:21:56 PMreport abuse

Obama's stimulus plan

The critism of P-BO's plan has more to do with the plan than the fact that he is a Democrat.

By Amy @ 01/26/09 02:20:59 PMreport abuse

Bush-bashing

Bush isn't President anymore, get over it, it's P-BO's turn. And to the standard liberal talking point comeback about give P-BO a break - why? What chance or break did the Libs give Bush, none. Plus, Obama said he was ready during the campaign, so now the Libs are saying give him a break, he's inexperienced.....give me a break.

By Amy @ 01/26/09 02:16:53 PMreport abuse

too much time

If you could get a one or two year cd at that rate, that plan would make sense for those who do not want to risk principal. Ten years is too risky.
That said,the fact that the last ten years has been a loser for stocks is considered an anomaly by Clark and others, just because it has "virtually never happened before." But there is something else that has never happened before and that was America's post-war rise to economic dominance. That event is not going to happen again, and any consideration of past stock returns must consider that boom. Another magazine, forget which, made the analogy to an individual company, Microsoft. Microsoft's past share performance includes its initial boom years. No one would buy their shares now and expect a repeat of that rise to market dominance. Same with the American economy as a whole.

By postprime @ 01/26/09 11:45:13 AMreport abuse

I agree with Sam below

The flaw in Clark's logic is time value of money. 10k today is worth 13k in the future, so if you only have 10k in the future, you have, in fact, lost money.

By Kristopher @ 01/26/09 08:41:09 AMreport abuse

Returns

How many people do you know who bought the S&P 500 exactly 10 years ago, held the entire 10 years without buying or selling any shares? Probably no one which means that Clark's example is a little deceptive. Most people have been dollar cost averaging the S&P 500 index through their 401K plans so their returns are not going to be as bad as the example Clark gave.

By Denny @ 01/25/09 07:28:02 PMreport abuse

Really bad advice Clark

Any investment linked to the purchasing power of the U.S. dollar is a sure loser. The crazy deficit spending and outright money printing by the Federal Reserve mean that inflation is baked into the cake and our dollars will purchase less and less in coming years.

Buy real things if you want to preserve your wealth -- land, precious metals, collectibles, guns, ammo, booze -- you get the picture.

By Sam's not my uncle @ 01/25/09 06:17:32 PMreport abuse

Odd

How can anyone talk about Obama when we just got thru with 8 years of the bush mess. By the time Bush and his stealing cronies got thru the nation was bankrupted and the poor got poorer while the rich hoarded their money.

Even if Obama does nothing it will be 10 times better than the Bush legacy.

By Tonya @ 01/25/09 09:45:43 AMreport abuse

Inflation

Putting money in a 10 year CD makes no sense whatsoever. When the Democrats get done "spreading the wealth around", the dollar will become a joke. As an economist I am only too certain that we are heading into a period of hyper inflation. Ten years from now you will be paid back with a dollar that may be worth only 17 cents.

There is only one way to protect ourselves from Obama and the socialists in Washington. Gold baby!

By Buzz Gee @ 01/24/09 01:46:36 PMreport abuse

Money Mag

If returns are even worse than the depression, why does Clark want us in the market? I say things have changed. For many reasons the markets will be "dead" for a good number of years. Probably until the baby boomers are well into retirement, and dying off.

By Vic @ 01/24/09 01:09:46 PMreport abuse

Article in Money Magazine.

If I'd written that article for Money Magazine, I wouldn't put my real name on it either.

By Leroy @ 01/23/09 07:49:21 PMreport abuse

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Jan 23, 2009 -- A can't lose strategy for the stock market?

What others are saying