| To many folks stocks and bonds are like heads | | | | term have returned closer to 5% or 6% to |
| and tails, up or down, or silver and gold for all | | | | investors per year. Most investors buy them for |
| they know. That's not good if you want to | | | | the higher interest they pay vs. money in the |
| succeed as an investor. They are two different | | | | bank or other investment alternatives. |
| animals, preferred by two different types of | | | | There have been times when bonds returned |
| investors. | | | | double digits. At the same time, inflation has been |
| Smart investors invest in both, plus in alternative | | | | at double digits, and bank CD's have paid double |
| investments like real estate and hard assets as | | | | digits as well ... as in the early 1980's. |
| well. Let's get real basic about the famous, yet | | | | Bonds represent long-term debt and are issued |
| not by any means identical twins ... stocks and | | | | by corporations and public entities like the U.S. |
| bonds ... equities vs. long-term debt. | | | | government, states and municipalities. Here the |
| Stocks (equities) represent ownership in a | | | | issuer is borrowing money from members of the |
| company, and over the long term have returned | | | | public, with a promise to pay a set interest rate, |
| a bit over 10% a year to investors who simply | | | | and to pay the bond holder back at a specified |
| buy a bundle of them and hold on. There is | | | | time. |
| significant risk in owning the wrong ones, especially | | | | When you own these debt instruments, you do |
| if you own them at the wrong time. When the | | | | not own a part of the entity who issued it. You |
| economy gets bad and the stock market falls, | | | | simply own an IOU. If a corporation issued the |
| expect to lose money in stocks if you hold a | | | | bond and later found themselves in financial |
| variety of them. | | | | trouble, bond holders have a higher claim on |
| Simply put, equities (common stock) come into | | | | company assets than stockholders. |
| existence when a corporation goes public and sells | | | | These IOUs are issued to raise money for |
| shares to the public. Then these shares trade in | | | | long-term projects or for expansion. Once they |
| the stock market. When you buy shares through | | | | are sold to the public, they trade on the bond |
| a broker, you are simply buying them from | | | | market, much like stocks trade in the stock |
| someone else who wanted to sell. | | | | market. These debt instruments are not risk-free |
| When you own stock, you own part of the | | | | investments. To make your investing life simpler, |
| corporation. If the company pays dividends, you | | | | invest in bond funds vs. individual issues. |
| get your share based on the number of shares | | | | Corporations go broke, and government entities |
| you own. If the stock price goes up, you make | | | | get into financial difficulty. Plus, when interest rates |
| money like every other shareholder. If the price | | | | go up significantly, virtually all existing bonds |
| falls, all stockholders suffer. | | | | become less attractive and lose value. |
| Much of the money you want to put to work | | | | Generally speaking, younger people should |
| should be invested in equities if you want real | | | | emphasize stocks in their overall investment |
| growth over the long term as an average | | | | portfolio. Older folks should lean toward bonds and |
| investor. If you want to keep things simple, avoid | | | | other safer investment vehicles. |
| picking your own and invest in stock mutual funds. | | | | That's as simple as it gets. |
| Bonds are safer than stocks, and over the long | | | | |