Planning for Retirement

 

certificates of deposit—are allowed to compound, unen-cumbered by tax, year after year, they can perform quite admirably. Again, I don't think that over the long term they have a snowball's chance in hell of outperforming a well-selected mutual fund, but they can perform respectably."

"Our old friend, compound interest," James Murray joined in. "Nowhere is she given more chance to shine than within a tax-deferred vehicle. The combination of time and compound interest is more powerful than a locomotive, a nuclear reaction, or even a Tony Clark home run. John D. Rockefeller often spoke of the magic of compound interest. He once said, 'If you want to become really wealthy, you must have your money work for you. The amount you get paid for your personal effort is relatively small compared with the amount you can earn by having your money make money.' He knew whereof he spoke."

After an appropriately dramatic pause, James continued.

"With all due respect to our leader here, I have es-chewed his advice in this one area. Over the years, I have placed the majority of my tax-deferred investments in CDs, bonds, and the like. Only after the U.S. stock markets have declined for a full year do I invest in equity mutual funds. This extremely conservative strategy has served me well," James boasted.

This particular point, although I'm sure a good one, was lost on me. I was still wondering what "eschew" meant.

"No offense, Roy, but I think I may follow James's lead and invest my tax-deferred money primarily in loaner-ship investments. You yourself said it's the one place a loaner can prosper, and with me already investing my ten percent savings in mutual funds, it makes sense from a diversification standpoint, too. Plus, without a pension, I