Prediction: This Popular Investment Will Lose to the Market Over the Next 5 Years

Certificates of deposit (CDs) have become a popular investment over the past few years as rising interest rates have helped push CD rates higher. And they're still a good option for some people.

A few 5-year CDs have annual percentage yields (APYs) over 4.00%, giving people a safe place to earn a decent return on their investment.

Despite these relatively high rates, I don't have any money in CDs. And if you want to maximize your returns, you shouldn't either. You could earn much more by investing your money in the S&P 500. Here's why.

The odds are in the S&P 500's favor

The stock market can be volatile, which makes many people nervous. Their hesitation is understandable, but there's also a risk of not investing your money in the market. That's right, it's risky not to put your money into the market because it's possible it won't grow fast enough.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

Consider this: The S&P 500's historical annual rate of return is 10.2%. If your aim is to save as much money as possible for retirement, the stock market is the place to do it.

Let's assume you put $5,000 into a 5-year CD earning 4.00% APY. Meanwhile, your friend puts the same amount into an index fund tracking the S&P 500, earning 10.2% annually. At the end of the five years, you would have about $6,083 -- but your friend would have about $8,126.

Of course, there's no guarantee you'll earn that much each year. But you could, and you could even earn much more. Just for perspective, the S&P 500 has soared 79% over the past five years! And it's this huge potential of the S&P 500 that makes it a far better long-term investment than a CD.

How to ease into investing in the stock market

The easiest way to start investing is to open a brokerage account and buy a low-cost index fund. Plenty of great investing apps make it easy to open an account.

Thinking about the stock market can be overwhelming if you're new to investing. So, let's simplify a bit: The S&P 500 is just an index that tracks the performance of 500 of the largest companies listed on U.S. stock exchanges.

You can buy shares in funds that track the index, just like you can buy shares of individual stocks. For example, I own shares of the Vanguard S&P 500 ETF, one of the largest index funds in the world, which tracks the benchmark S&P 500 index.

And if you never develop an interest in investing in individual stocks (like Apple, GM, Amazon, etc.), you can just stick to the index fund. Your investments will benefit when the market as a whole is doing well.

Before investing your money into the stock market or a CD, ask yourself what your goals are. If you're nearing retirement and need a small portion of your money to simply outpace inflation, then buying a CD may be the right move.

But if you want to maximize your returns and give your retirement funds the best possible chance to grow over time, put your money into the market.