Bonds vs. Stocks: A Beginner’s Guide
If you want to get started investing, it’s important to know the ins and outs of stocks and bonds—the basic building blocks of most Americans’ portfolios. About six in 10 adults report owning stocks , which represent your own sliver of ownership in a corporation, like Apple or Starbucks, and let you benefit from its growth as the stock’s price rises in value. Far fewer people own bonds, a type of fixed-income investment that represents your share in a loan made to a company, government or other entity.
Still, bonds’ returns are more predictable than stocks’ and allow you to collect interest, generating a steady stream of income. “Historically, investors who have both stocks and bonds benefit," says Jonathan Lee, a St. Louis-based financial planner at U.S.
Bank Wealth Management. “They have the relative safety of bonds and the higher return potential of stocks." Of course, neither stocks nor bonds are risk-free. Still, some of the risks, such as price volatility, can be lessened by investing in mutual funds, which pool individual stocks and bonds.
Whether you should own more stocks or bonds in your portfolio depends largely on the timing and cost of your financial goals and how comfortable you are with risking your money. Here’s what to know about the difference between stocks and bonds, how to buy them and how your profits are taxed. What are stocks? Stocks, also known as equities, give investors an ownership share of a company.
When a company performs well, its stock price generally rises. That capital appreciation is one of the main reasons stocks help investors build wealth. Some companies also share profits with their investors through regular payments called dividends .
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