Stocks and bonds. You don’t have to be an investor for long before somebody suggests that you should have some of both. Bonds are supposed to be your financial safety net, while stocks are where you hope to earn your higher-flying returns … or so you’ve heard.
Okay, but what is it that makes bonds and stocks so different from one another, and how do these differences apply to your own investing? In today’s “No Dumb Questions” video, you’ll find out this and more about the bond side of your stock/bond portfolio mix.
It starts by understanding the basic structure of each holding
These essential differences are often lost in all the talk, talk, talk about yield curves and interest rates and Bank of Canada monetary policies. An yet, they actually explain nearly all of the reasons stocks and bonds behave differently from one another over time, and why it makes sense to hold an equal portion of both. Get a good feel for these basics, and you’re well on your way to making sense of what all that bond talk is all about.
The basic nature of stocks versus bonds also explains why each exposes you to very different sorts of risks and expected returns. Speaking of bond risks, another question I often hear is this one: “Nancy, if bonds are supposed to be so ‘safe,’ why do my bonds or bond funds sometimes decline in value?”
That’s a great question as well. So great, in fact, that I’m going to cover it in a video of its own, my next “No Dumb Questions” segment. Stay tuned for that!