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Articles > Archive > December 2011

The difference between stocks and bonds
12/30/2011 10:46:28 PM
Category: Financial Education

New investors just beginning to learn the lay of the land may wish to do a bit of research on the different types of investment opportunities that may be available to them. Two common types of investments are stock and bonds. Each of these investment paths offer their own pros and cons depending on the market and how far away from retirement you are.

If you are determining which one is the investment opportunity best for you, consider the differences carefully - as well as what you are willing to risk.

Bonds
This investment opportunity allows you to act as the banker by providing loans to a company or project in return for the loan repaid with interest. They also provide a steady stream of interest-accrued revenue, which can be predicted and work to supplement an income or retirement plan. Bonds are typically considered the less risky investment option when compared to stocks. However, they may generate less reward as well.

Next to the U.S. Treasury, bonds are one of the safest forms of liquid investment, according to CNN.

Stocks
This potential portfolio creator gives the investor part ownership in a corporation. By buying stock in a company, you receive a stake in all potential earnings, assets and failures of that organization. They are traditionally sold by the company in an effort to create additional funds for other projects or expansions. This form of investment can be considered high-risk depending on the market, industry and particular company you have decided to purchase. However, it does offer you the potential for the greatest reward.

Creating a balance between theses two types of investments may be the mix of risk and stability a consumer is willing to participate in. The later in life an investor is, the less risk he may wish to take with his funds. In contrast, younger investors have a greater amount of time in the market to see a recoup in potential losses.

Investments are a great opportunity for you to supplement your income and diversify your financial portfolio. Diverse holdings can create additional monetary safety and provide either steady or enormous financial reward depending on the type of investment and the market.

Archive > December 2011


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