After putting in years of hard work and saving money, many people feel the urge to put their nest egg to work for them. Your savings can earn you money instead of sitting there in your bank account if you take the time to invest it. However, all investments involve a certain amount of risk, meaning you could also decrease or even lose your savings if you make a bad call. This article will help you learn about stocks and bonds and the best way to use them to build your nest egg.
Before you even consider investing your money in anything, whether it's new real estate investments or savings bonds, you should know the difference between a stock and a bond. Both are types of securities, but stocks are less financially secure than bonds are. When you own a stock, you are buying part ownership of a company and are therefore subject to any pitfalls as well as any gains the company makes while you own the stock, which you can do for any length of time, buying or selling as you see fit.
With a bond, however, you are lending money to a company or organization. What they do with the money is up to them. They might use it to develop software solutions for their industry or expand their company. They do not have to consult their bond holders for approval. However, in exchange for this freedom they are required to pay back the amount of the loan plus interest when the defined period for the loan is over. In this way, buying bonds is much like being a mortgage lender - the terms of the agreement guarantee you your money back with interest.
As you can see, unless a company goes bankrupt and is unable to repay its debts, a bond holder is guaranteed to make money. However, the potential income earned from a bond is less than the potential income you could make if you bought stock in a company. The trade off is the risk. To make more money you must risk losing it. For this reason, many people keep a balance of stocks and bonds in their investment portfolio to avoid the potential of losing all their money at once.
People who are successful at trading stocks are people who are willing to do a lot of research and can take the long view on the future of companies or industrial trades. If that's not you, it's best not to experiment with investing your own money unless you do so with only a small portion. Instead, hire a broker or investment counselor that you trust to invest your money for you.
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