When investing it’s easy to get caught up in the ‘should I be investing in stocks or bonds?’ question. The reality though is that it’s not an either/or question. You need a good mix of both because they offset each other.
I like to use a baseball metaphor to help people understand the difference between the two. Bonds mean you let a company borrow your money, and are like hitting singles or doubles. Stocks mean you own part of a company, and are like swinging for the fence hoping for a home run.
Many people want to go all or nothing when it comes to bonds or stocks, but a good mix is always a better answer, no matter your age. The real question then is what percentage of each should you go with? This question requires a look at two factors: 1) age and 2) risk tolerance. I’m in my mid-30s and I have about 10% of my portfolio in bonds. As I age, I’ll increase the percentage because I’ll become more hesitant to put my money at risk.
It’s also important to remember that stocks and bonds have an inverse relationship. If stocks are up, bonds will be down, and vice versa. Just another reason why having a good mix is beneficial.
Ever seen a man explain stocks and bonds while wearing a velvet blazer? Well, today is the day. Check out my segment on Fox 59 with Ray Cortopassi here:
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.