Sometimes boring is beautiful. With the stock market whipping investors along gut-wrenching swings, the steady-as-she-goes certificate of deposit (CD) may be an attractive shelter.

CDs are a safe investment in volatile times.

But there is a price to be paid for a guaranteed return. If you tie up your money for six months to a year or two, you could miss out if stock prices suddenly take off again.

So CDs, while a stable refuge, work most effectively as one component of a portfolio.

Over the long term, stocks provide the best opportunity for your assets to grow.

Historically, the U.S. stock market has offered investors annual returns averaging a little more than 10 per cent if dividends are re-invested.

diversified portfolio best

"Most investors are best with a diversified mutual-fund portfolio," says Joe Garrison, a certified financial planner with Strategic Wealth Management Group in Columbia, Maryland.

Such diversification would include stock funds, bond funds and money-market instruments in a mix tailored to match the risk an investor can comfortably bear. Generally, the more time the investor has until the cash is needed, the greater the share that can be devoted to stocks.

CDs can fill a niche for many investors, even those comfortable keeping most of their money in stocks. They are particularly attractive for people in or nearing retirement who cannot afford to risk losing principal or interest.

They are also useful for younger investors who would like to park money that they will need in six, 12 or 18 months for a tuition payment, a car, vacation or the downpayment on a home. Stiff early-withdrawal penalties, often equal three to six months' interest, are a strong incentive to keep your hands off the money until the CD matures.

A search for the best rates should include Internet-based banks as well as local banks and credit unions.

As with all investments, it is crucial that an investor pay attention to the fine print before investing. In particular, check to see if it is 'callable,' which entitles the bank to call off the deal before maturity if market rates decline.

The bank would return your principal and the interest earned to date. Callable CDs should offer you a higher interest rate in return for your acceptance of that risk.

Check the details on how your funds will be handled when the CD reaches maturity. Many institutions automatically roll over your funds into a new CD of the same duration at the prevailing interest rate unless you give them other instructions within a week or two of maturity.

- LA Times-Washington Post