FAQs
Stocks offer an opportunity for higher long-term returns compared with bonds but come with greater risk. Bonds are generally more stable than stocks but have provided lower long-term returns. By owning a mix of different investments, you're diversifying your portfolio.
What are the pros and cons of stocks and bonds? ›
Stocks offer the potential for higher returns than bonds but also come with higher risks. Bonds generally offer fairly reliable returns and are better suited for risk-averse investors.
What are the pros and cons of the stock market? ›
Investing in stocks offers the potential for substantial returns, income through dividends and portfolio diversification. However, it also comes with risks, including market volatility, tax bills as well as the need for time and expertise.
Why is it good to have both stocks and bonds? ›
The 60-40 portfolio (60% stocks and 40% bonds) is a popular alternative to target date funds. That strategy offers the benefit of more reliable returns over time, and it avoids becoming too conservative in retirement.
What are the pros and cons of US bonds? ›
These are U.S. government bonds that offer a unique combination of safety and steady income. But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered.
What are common stocks pros and cons? ›
Investors with common stocks own voting rights without any stress of company legalities. However, the profitability of most common stocks is limited because they are prioritized in payouts and the company's freedom to defer dividends until funds are largely available.
What are the disadvantages of stocks? ›
Disadvantages of investing in stocks Stocks have some distinct disadvantages of which individual investors should be aware: Stock prices are risky and volatile. Prices can be erratic, rising and declining quickly, often in relation to companies' policies, which individual investors do not influence.
What are the pros and cons of getting a bond? ›
Bonds have some advantages over stocks, including relatively low volatility, high liquidity, legal protection, and various term structures. However, bonds are subject to interest rate risk, prepayment risk, credit risk, reinvestment risk, and liquidity risk.
What are the pros cons of investing in stocks and bonds? ›
Bond payments are usually subject to income tax, while profits from selling stocks are subject to capital gains tax. Capital gains taxes may be lower than income taxes for investors in some income brackets. However, bonds may come with tax benefits you might not get with stocks.
Why is investing in stocks so risky? ›
Stocks are much more variable (or volatile) because they depend on the performance of the company. Thus, they are much riskier than bonds. When you buy a stock, it is hard to estimate what return you will receive over time (if any). Nonetheless, the greater the risk, the greater the return.
The potential benefits of investing in stocks include: Potential capital gains from owning a stock that grows in value over time. Potential income from dividends paid by the company. Lower tax rates on long-term capital gains.
What are the pros and cons of issuing bonds? ›
Bonds have some advantages over stocks, including relatively low volatility, high liquidity, legal protection, and various term structures. However, bonds are subject to interest rate risk, prepayment risk, credit risk, reinvestment risk, and liquidity risk.
What is one disadvantage of buying stocks? ›
Disadvantages of investing in stocks Stocks have some distinct disadvantages of which individual investors should be aware: Stock prices are risky and volatile. Prices can be erratic, rising and declining quickly, often in relation to companies' policies, which individual investors do not influence.
Why are stocks and bonds risky? ›
Stocks are much more variable (or volatile) because they depend on the performance of the company. Thus, they are much riskier than bonds. When you buy a stock, it is hard to estimate what return you will receive over time (if any). Nonetheless, the greater the risk, the greater the return.