Should You Invest in Stocks or Bonds?

So you’re motivated to start investing, but you’re a bit overwhelmed by all the technical jargon. Before you get started, here are a few points to consider that will help you determine which direction to go.

The main investing decision you have to make relates to your tolerance for risk. Stocks have always been the best performers over the long haul, with an annual gain of nearly ten percent every year since the 1920s. However, the rollercoaster ride can be scary and unpredictable. Stocks can dip nearly forty percent each year, as was the case with 2009. Stocks make the best money over years but can really nosedive in the short-term, which means that investing in stocks can be very unsettling for the beginner.

Bonds are another investing option, but they do not bring the same long-term returns that stocks do. Bonds have steady but small returns. Because bonds barely beat inflation, however, you can’t count on them to bring serious profits.

Most investors opt for a mix of both stocks and bonds, because it’s never smart to put all of your eggs in one basket. Investing a certain percentage of your money into bonds will help balance out the risk level of your stocks. Any financial expert will tell you that diversity is the key when it comes to investing. Bonds act as a hedge against stocks.

Investing is risky, but it is the best way to prepare for retirement. There is no safe bet, but by not investing, you won’t be able to beat inflation by just leaving all your money in a savings account. Create a diverse portfolio and you will not only beat inflation, you’ll have the peace of mind that comes with a range of allocations.

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