stocks and bonds are investment staples

There are countless investment opportunities available to the public at any given time. Over the years various alternatives have gained and then lost popularity within the investment community. However, perhaps no options have enjoyed the staying power of traditional stocks and bonds.

Essentially a share of stocks is equivalent to a small percentage of ownership in the company from which it is issued. The more an individual owns the larger his stake in the organization becomes. A stock. s share price will vary depending on a wide range of factors, such as: the number of shares issued, the performance of the company, prospects for growth, etc. This direct correlation between a company and its stock produces a high amount of risk. If the company struggles then the stock will suffer. However, this relationship also makes it possible to receive a high return on investment if the organization prospers.

Most experts recommend that individuals should diversify their personal portfolios in terms of risk and structure. This prevents all of a person. s financial eggs from being placed in one basket. As a result, it is generally considered wise for an individual to place a limit on the total percentage of stocks that he owns at any given time. These limits will vary depending on the investor. s age and objective. For example, if a young investor is saving for retirement than he would select a high percentage of stocks. Although this creates a higher level of risk, there is plenty of time to recover should the stock prices drop. The closer that a person gets to retirement the smaller this percentage should typically become.

The question then becomes what investments are good options to balance out a portfolio? Many people choose bonds to serve this purpose. Unlike stocks, bonds are completely unrelated to ownership in a company. Instead, a bond is loan that an individual makes to a company (or the government) for a designated period of time. In return the company agrees to pay the investor predetermined amounts of interest as well as repaying the principle when the time has elapsed. This investment option carries very little risk, but consequently does not offer the potential for high returns.

Stocks and bonds have been solid investment choices for generations and will continue to be so into the foreseeable future. The high growth potential of stocks and the low risk nature of bonds work in tandem extremely well. Together they can help an individual form a balanced and high performing portfolio.