In addition to stocks and bonds, you may hear about other investments, like commodities (like oil or precious metals), foreign exchange, credit, inflation, and.
In your stock portfolio, you will already have exposure to these asset classes. For example, your stocks should include energy companies (commodities exposure), foreign companies (foreign exchange exposure),and, by virtue of owning stocks themselves, some credit exposure.
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As an investment consultant in one of the most successful investment companies in the US, this is a question that I deal with on a daily basis. It is certainly important to consider other investments in addition to stocks and bonds, however that does not necesarily mean that you need to buy them individualy to accomplish that. Simply investing in a diversified mutual fund could allow you to have exposure to stocks, bonds, CD's, REITs, commodities, foreign investments, etc., without the risk and volitility of investing dirctly into these positions directly. This is particularly true with comodities, futures, options, and foreign equities.
If you are a medium to high risk investor then Stocks are good for you If you are a low to medium risk investor then Bonds are good for It all depends on how much of a risk you can take. By investing in stocks you may make profits but you may incur losses as well. But in case of bonds the profits might be less but they are assured.
Bonds and stocks serve different purposes to the investor, and ideally you should buy both. Advantage of investment-grade bonds: the issuer is committed to paying you a stated amount of money on a stated date. The disadvantage is your return is limited to the agreed-on amount. Advantage of stocks: potentially unlimited return on your investment. The disadvantage is there are no guaranteed returns with stocks; you could potentially lose everything you invested in them. Speculative-grade bonds, or "junk bonds," have a risk/reward system more like stocks than investment-grade bonds.
Both stocks and bonds are investment options available for us as an investor. What we choose depends on what we want. If you want high returns and are ready to take high risk - Go for Stocks If you are satisfied with meager returns like 10% or so and are not willing to take any major risks - Go for Bonds
A diversified portfolio contains a mix of various types of investments, without a great concentration on any one investment type. The main categories include equities (stocks), fixed-income (bonds) and cash. Within each of these categories are subcategories. For example under stocks are included: individual stocks, mutual funds, stock ETF's, foreign stocks, small capitalization, medium caps, large caps. Under fixed-income are included: corporate bonds, government bonds, municipal bonds, convertible bonds, foreign bonds. This mix of investment types is intended to protect the investor from suffering a large loss from being exposed in one type of investment when that investment losses value. Someone can easily paraphrase these strategy by the saying "Don't keep all your eggs in one basket".
The important difference for investors in regards to bonds and stocks is risk. Stocks are a more risky investment, and as a result they can lead to both bigger gains and bigger losses. On the other hand, bonds are stable investments which consistently pay out. For an investor who might be younger or have greater disposable income or fewer liabilities, a greater percentage of stocks might be a better option. For someone seeking to retire soon, or who is less informed about the stock market and its risks, more bonds might a safer option. In all cases, investments in stock should be made with due consideration and research. A balanced portfolio will include both bonds and stock, but risk is the ultimate deciding factor.
they are both the same. An investor may have been in early before shares were public but they still own shares. An investor is someone who uses his money to make more money. There are about a billion kinds of investments--you could loan money to buy cars, purchase investment properties, buy bonds, whatever. Shareholders are investors who buy stocks.
Bonds provide the investor with a steady and predetermined stream of cash inflows. This is not true for stocks, since even dividend rates for stocks change very frequently. Also, the assessment of risk for bonds is easier than for stocks due to the availability of grades (e.g., AAA) by rating agencies such as Moody and S&P. Thus, bonds allow for easier financial planning and help in risk management of a diversified portfolio. Actually, there's such a thing as a zero-coupon bond. They pay all their interest at the date of maturity, which is usually far in the future--10 years or more. I like buying municipal bonds issued in my state--they're completely free of state taxes.
This is actually a difficult question that would require analyzing your goals and risk tolerance. However, if you are looking for an easy answer, conventional wisdom is that you should have 100 minus your age as the percentage in stocks and the rest in bonds. So a 60 year old should have 40% in stocks and 60% in bonds.
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