Stocks vs Bonds: Which is the Better Investment for You?
28 Feb 2019
Should you invest in stocks, or should you invest in bonds? Which is best? Read on to learn all about stocks vs bonds.
Wise investing takes a great deal of strategy and knowledge about the stock market. One of the biggest pieces of advice you’ll ever hear is about diversifying your portfolio.
Diversification spreads your investments out over several different types of investments. How much should you be putting toward each type of investment?
We’re here to help you figure out the best overall strategy for you. It will depend on your plans, your goals, and your current financial situation.
Are you wondering about stocks vs bonds? In which should you invest? How much should you invest in each one?
Continue reading below to find out more.
What are Stocks?
When you buy a stock, you buy a stake in ownership of that particular company. Companies shell shares of their company in exchange for cash from investors. When you make a stock investment, you invest in the company’s future.
There are several different ways you can make money investing in stocks. You may sell a share of the company at a higher price than you paid for it.
For example, you might buy a share at $50 and sell it for $83. Your profit would be $23.
Some stocks will pay out dividends. These are rewards paid out to investors from a portion of annual earnings.
What Are Bonds?
A bond is like an IOU to investors. A company or entity creates bonds to fund growth and development.
These are fixed-income investments. The company or government entity will pay back the entire amount of the bond plus interest. This interest rate is known as the coupon rate.
Bonds come in denominations of $1,000 often with interest payments made twice annually.
For example, you might invest in a $2,000 bond with a coupon rate of 5%. You receive two interest payments of $50 each twice a year.
If the bond has a 10-year term, you’ll make $1,000 from your initial investment.
Stocks vs Bonds: What’s the Right Investment
In general, your investment portfolio should contain some combination of both stocks and bonds.
Many investors consider bonds to be lower-risk investments. However, stocks historically yield greater returns over longer periods of time.
More conservative portfolios will contain more bond investments compared to stocks. You might choose such a strategy if you have shorter-term investment goals. This might be if you start investing for retirement at an older age.
If you want to see greater returns and have more time to compensate for risk, your portfolio might contain more stocks. Some ultra-aggressive portfolios contain 100% stock investments.
The strategy you choose will depend on your short or long term investment goals.
Start Investing Today
It’s never a bad time to begin investing in your future. Investing is the best way to plan for retirement or whatever comes next in your life.
If you’re wondering about stocks vs bonds, you should think about your investment goals. Investing in more bonds than stocks is good for short-term or conservative investment strategies.
Do you need help managing your investments? Check out the services we offer here at Solera Asset Managers, LLC.