Stocks vs. Bonds
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Welcome everyone to this edition of Cornerstone Clips. I’m here to talk to you about stocks and bonds. So, let’s talk about the differences between stocks and bonds and and how the two different investment vehicles, how they can work for you. So, stocks when you buy a stock, you’re buying ownership into a company. Therefore, you participate in the profitability of that company. So, the more profitable the company is.
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The more appreciation you’re going to see in that stock or vice versa if the company is less profitable, you’re going to see the price of the stock go down. So, you participate in the strength of that company, whereas a bond is a debt instrument. What does that mean? That means when you buy a bond,
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You are actually actually issuing debt to that company. If it’s a corporate bond or to that government agency if it is a treasury or a municipal Bond. And So, what? How that works is it’s like a loan. You buy a bond, you’re willing to lend that agency or corporation, that amount of money for a stated period. And at the end of that stated period, you get your money back. And during that stated period.
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You collect interest on it, so functions, much like a loan, and given that it’s structured like a loan, it is much more conservative than having ownership in the company. And so, looking at the pros of stocks stocks generally speaking over time allow for.
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The potential for greater returns due to the ownership component of them, whereas bonds provide the stability of a portfolio due to the debt component of it and so pros and cons, there are some of each. Stocks pros is historically speaking. They offer greater returns over time, but one of the cons is they also offer greater volatility over time. That’s why you hear people talk about the stock.
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Market and the prices, volatility up and down and sideways sometimes. And so, there’s more risk involved in in investing in stock, but more potential return over time. The pro of bonds is the fact that they provide more stability for portfolios. And the con is you’re getting paid from a risk perspective, you’re getting paid less because you’re taking on less risk. And so, when you’re evaluating whether or not to buy stocks or whether or not to buy bonds, I think you need to take into consideration investment time frame, stocks are more long term. Bonds are more shorter term and or.
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Your personal risk tolerance. The reality is most portfolios are a blend of both and you have to find your comfort zone of how much stock exposure you want inside of your portfolio relative to how much stability or bond exposure you want inside of your portfolio. And that’s what we do here at Cornerstone is to help you decide what would be the best blend between the two, but that is a brief rundown of the differences between stocks and bonds. Thank you for your time.
