What’s the Difference Between Stocks and Bonds?

When diversifying your portfolio, you’ll read article upon article about stocks and bonds. They’re referenced together so often that they’ve become synonymous to those who are unclear of the differences. However, understanding how they differ can help you to choose which assets best fit your needs. In this article, we’ll share details on each to give you insight into how these two instruments contribute to diversification. 

The Characteristics of a Stock

So, let’s take a look at the characteristics of a bond to see how they compare.

The Characteristics of a Bond

Why These Differences Are Important

Stocks and bonds are both means of raising funds for an entity—but the way they raise those funds is what you must pay attention to when diversifying. Overall, when it comes to your portfolio, it’s crucial to acknowledge that stocks have a considerable amount of risk, whereas bonds are usually much safer investments. 

This does not mean that one is better than the other; it all depends on your risk tolerance. Depending on several factors, such as your age and financial goals, you and your advisor will determine the number of stocks and bonds that you should invest in.

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