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Stocks vs. Bonds

So, what is the difference between the two?

The investing world can be complex and confusing. To navigate it successfully, you need to understand the jargon associated with it, follow the stock market, and read lots of financial articles. Diversification is crucial to survive any stock market corrections, which will always happen. A diversified portfolio keeps your assets across multiple asset classes, like domestic and international, and various sectors such as manufacturing, technology, pharmacy, or retail.

Stocks help you build wealth by owning shares in a company, giving you ownership and a chance to make money through methods like dollar-cost averaging. As a shareholder, you also get perks like voting rights. If individual shares are too pricey for you, you can buy fractional amounts over time, making it more flexible.

Bonds are issued by municipals, state/federal governments, and corporations. These are debts that companies and governments issue in the form of loans, which are bonds. They have variable interest rates (monthly, semi-annually) depending on the loan terms and repayment length.

Bonds protect your assets from inflation and should be a part of your portfolio when stocks are hard-hitting with fluctuations in the market. They are especially important as you approach retirement and need to withdraw money since you rely on that money when you start to withdraw.

How much you diversify between the two depends on many factors, but the biggest question is your age. Your age determines how to weigh your asset allocation. For instance, a 20-year-old would likely position a split of 90% stocks and 10% bonds since they can handle more risk due to their age and time towards retirement. On the other hand, a 40-year-old would lean towards a 70-30 or 80-20 split to avoid those market swings and not drain their retirement savings.

Both stocks and bonds are necessary for growth and protection of your assets for retirement and other goals. A fund with both can help ride the waves and splashes that will likely happen over time as you continue on the financial journey.

Remember, the most essential aspect of investing is to get started, even if it’s with a small amount like $10/week or $100/month depending on your budget and income. The sooner you start, the better your future and the future of your loved ones will be. I am here to serve and help you reach financial freedom. I am here to coach and teach what I have learned and continue to learn by adding value to your life and helping you along your financial journey.

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