Stocks and bonds are among the most popular types of investments for individuals at all life stages and economic status from the young person investing their first $1,000 to millionaires managing their retirement portfolio. Many investment advisors recommend having both stocks and bonds in your investment account. Stocks have more upside potential for returns, but also more risk of loss of principal when the market suddenly turns down. Bonds offer lower overall returns, in the long run, but more safety and also the opportunity to earn interest. A blend of these two investments can provide you with the mix of risk and reward that is just right for your current life situation.
When making decisions about what to invest in, you have to take into account your attitude toward risk. The advantage of investing in mutual funds is that there are funds to fit every investor s needs, from the most aggressive to the most risk averse. There are even funds constructed to make money when the overall market is going down (of course these funds tend to lose value when the market turns back up).
Investing in stocks and bonds has become easier for the individual investor in recent years for a number of reasons. One reason is the advent of online access to accounts. It is possible now to make your own trades online without having to interface with a stock broker or other staff at a brokerage firm. You can place your buy or sell orders at your own convenience. The small investor also has much more investment information available than ever before. Services like Morningstar, morningstar.com, provide detailed analysis and ratings for stocks and mutual funds, making it much easier to choose from the hundreds of mutual funds available. More and more, it is possible for an individual to make his or her own investment decisions, based on reliable research data, rather than having to rely on recommendations made by a brokerage firm. Competition among the many firms that offer brokerage accounts, particularly the online accounts, has substantially reduced transaction fees the cost of buying and selling shares which used to be an impediment to being an active trader of stocks or bonds. It wasn t that many years ago investment firms required a relatively high threshold amount to be deposited in order to open an investment account with them, such as $10,000. This was a barrier to the individual just getting started with investing. But these barriers, too, have fallen, as investment firms now actively court the smaller investor, with the goal of building a long term relationship with them.
Because stocks can be volatile investments in the short term, it requires a certain amount of patience to be successful. You have to ignore the day to day swings caused by good or bad news on the economic or political fronts, and have a disciplined, long term strategy. One strategy is to add a specific amount to your investment account at regular intervals, say every month or every quarter, whether the market is currently having a bull (up) or bear (down) phase. Historically, stocks provide greater returns than many other investments over the long term. Holding stocks over the long term has generally proven to be a sound strategy for the individual investor.
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