So, I’m hopeful you’re having fun around our little virtual campfire…
By now, you’re clear on what a cosine is, and what a stock is…so what is a bond?
When you invest in stocks, you’re an owner of businesses. When you invest bonds, you’re a lender to businesses.
A bond is a promise to pay you back while they use your money…with interest. Sounds great! Why would I invest in a bond over a stock? Well, a bond has a fixed interest rate. So, while the business may suffer in a bad economic environment (ummm, like maybe right now due to COVID!), you get a fixed income over a period of time. So, your investment value doesn’t take a dive like a stock owner’s might have.
However, the reverse is also true. Ownership of the business would allow you to participate in unlimited upside, whereas being a lender to a business gives you a fixed income, but no opportunity for upside.
So how much of my portfolio should be in stocks vs. bonds? That, my friend, is why financial advisors exist. The proper mix, based on your goals and risk tolerance, is of complete importance for an advisor to determine for you. And determining that mix is what I love to do for my clients every day.
