1. Your Questions About Bonds Vs Stocks
Charles asks…
Mutual Funds vs. Stocks/Bonds?
What is the difference between mutual funds and stocks?
What is the difference between mutual funds and bonds?
Steve Winston answers:
A mutual fund is a "basket" of individual securities. It could be a stock fund or a bond fund, or a
fund that has both stocks and bonds in it. It's usually professionally managed by a fund
manager or team. It allows you to diversify with smaller amounts of money.
Disclaimer. The information in this response is for general purposes only, and shall not be
construed as specific tax, legal, or investment advice for any individual. The questioner is urged
to contact their own professional advisers before implementing any tax or investment strategy
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2. Susan asks…
compare issuance of preferred stocks and bonds?
I have to compare and contrast the advantages and disadvantages of issuing preferred stock vs
bonds. I have struggled with this class and can't seem to find anything that breaks it down into
plain english. Any help would be much appreciated. I currently have an A and want to keep it.
Steve Winston answers:
Preferred Stocks are shares of ownership of the company.
Bonds are I.O.U.'s.
Ruth asks…
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3. stocks vs. bonds??
what's the difference between stocks and bonds.....
Steve Winston answers:
Stocks:
In simple terms, when you buy a stock, you buy ownership in the company. As such, you are
entitled to a share of the company's profits, which are paid to the shareholders through
dividends.
The price for company's stock is determined on the open market based on the overall market's
view of the company. If the company is viewed positively, more investors will want to own it so
increasing demand will move the stock's price higher. If the company is viewed negatively,
demand for the stock will be lower and the cost of the stock will fall.
Bonds:
When you buy a company's bond, you are loaning the company money for a specified period of
time at a specified interest rate. As such, you are not an owner, you are a creditor, and you are
entitled only to the interest you have been promised.
Assuming the company is able to meet its obligations, you will typically receive interest
payments either annually or semiannually, and you will receive the return of your investment
amount upon maturity. However, there is a market to buy and sell bonds prior to maturity. The
price paid for the bond on the bond market has little to do with the market's overall view of the
company: it is based only on the interest rate, the time until maturity, and the perceived
likelihood that the company will be able to pay the remaining interest and return the investment
amount upon maturity.
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4. Risks:
Obviously, the price of stocks can fluctuate significantly based on a wide variety of factors, and
there is always a possibility of an investor losing some or all of the money invested.
For bonds, there is relatively little risk if the bond is held until maturity. In that case, the only risk
to the bond holder is that the company may not be able to repay the investment amount.
HOWEVER, inflation and interest rate changes can dramatically increase or reduce the value of
the bond on the bond market.
Laura asks…
Stocks vs. Bonds?
What’s the difference? What’s better to invest in? What affordable stocks are doing well and
will do well in the long run? What do you recommend?
Steve Winston answers:
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5. This question is too broad to give specific meaningful answers. Choose a mutual fund that
allocates your money across the whole spectrum (often called an allocation or blend fund) just
for starters and in the meantime start reading the newspaper "Investor's Business Daily" and
browse the website below and start finding the answers to your questions. You don't have to
understand everything just keep at it and go where you are interested and soon you will be a
whiz.
P.S. Professionals "in the industry" make their money by charging you fees! If they know so
much, why do they have to go to work in the morning, why don't they just invest wisely!
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