What Are the Pros and Cons of Stocks vs Bonds
Video Transcript
Stocks are a growth oriented investment.
They offer you the potential to earn a dividend from the company, as well as participate in the growth of that company and generate some price appreciation on your investment.
However, they're highly volatile, especially over the short term.
They're not ideal for anybody that has less than a five year investing horizon. Bonds, on the other hand, are relatively stable, much more stable than stocks.
However, they come with their own unique risks.
Credit risk, which is the risk of not being paid back.
Interest rate risk, which varies with the length of the bond. The longer the term, the more risk you face there. Inflation risk goes hand in hand with interest rate risk.
And you also might have a situation where you have liquidity risk with a bond. They don't trade as easily as stocks on average.
