Welcome to professorsavings.com, we teach finance basics. Today we will teach you about stock versus bonds. Hi I’m Rayfil Wong. We hope these investment concepts will help you be a better investor. As you look to build your portfolio, you will find that you have a large number of investment options. The two biggest components of most portfolios are stocks and bonds. So how should you use them? One decision to make concerns your goals for your portfolio.
Do you want your portfolio to provide a steady income stream or are you looking for long-term growth? Stocks generally produce the best growth over time. A careful selection of stocks including both large and small companies from a diverse group of industries can produce excellent growth over time. For income, bonds are probably the better choice. Bonds pay interests twice a year and the amount usually never changes over the life of the bond.
Investors can buy bonds issued by local or national governments as well as by major corporations. Even if you’re sure of your goals, there’s always room for both stocks and bonds in every portfolio. For more aggressive investors who want growth, bonds can help balance the risk of stocks and stabilize the ups and downs of the market For more risk diverse investors who choose an income-oriented portfolio like bonds, stocks can provide valuable inflation protection.
The amount of interest that a bond pays is usually fixed, so an increase in inflation can reduce the value of those payments. Stocks will help you protect your money from inflation because stock values often rise faster than inflation. Your stock purchases provide an opportunity for high reward and help to hedge against inflation, while bonds will provide a dependable safety net against stock market loses. A mixture of stocks and bonds can help investors to maximize profits and minimize risks. Professor Savings signing out. Make sure you subscribe to our channel so you can learn more about finance basics.