For seasoned investors who want to manage their investment plans personally, stocks and bonds provide the flexibility to completely customize their portfolio with the possibility of achieving high returns.
When you purchase stocks in a company, you are buying part ownership, or shares, in that company. Investing in individual securities outside of mutual funds can generate increased returns for more sophisticated investors.
Stock prices usually reflect the earnings experience of the company and generally, the higher the potential return, the greater the risk.
- The advantage of being a stockholder, is that you share in the profits of the company you hold stock in.
- Stock prices are dependent on a number of variables including the time of year, the economy and how well the company is doing in the public eye.
- There are several different kinds of stock which pay a different percentage of dividends to stockholders.
- Consider buying stocks as part of your mutual fund portfolio.
Bonds are a debt investment whereby you loan money to companies and other entities for a defined period of time at a fixed interest rate—basically an IOU.
Although they may seem to offer an insignificant return compared to the stock market, their safety and security can be invaluable during uncertain economic times.
- Unlike stocks, bonds do not entitle the Bondholder to a share in the companies profits.
- Bonds do carry some risk in that the promised payment may not be made.
- Bonds, similar to common stocks, fluctuate in market value and, if sold prior to maturity, may produce a gain or a loss in principal value.