Candlestick Trading Blog
April 19, 2009
Bonds and Stocks
| When building your investment portfolio you want to ensure that you have the proper bonds and stocks ratio. Portfolio diversification is the key and in today's article we discuss stocks and bonds as they relate to diversification. Some way to determine the appropriate stocks to bonds ratio can be complicated but most analyst agree that you should have a range of 70/30 to 60/40 in regards to pre-retirement investing. Of course this ratio will depend on the investment risk per investor and how conservative or aggressive the individual investor is. For instance, the retired investor may want to have a higher ratio of bonds with the goal of preserving capital. This investor must be sure however that he or she has enough invested in stocks in order to counteract inflation. Once the investor has determined the ratio of bonds and stocks, he or she will need to work on structuring the bonds portion of the portfolio in particular. The investor must be sure that the bonds invested in provide stability. Many investors ensure stability by bond investing in U.S. Treasuries that provide low-yield products. In fact, about 20 – 35% should consist of treasuries along with other higher yielding products. When investing in bonds you can also invest in municipal bonds, also known as munis, corporate bonds, as well as other bond funds. When investing in municipal bonds, mutual funds are good but you must make sure the quality that the fund buys is good. Also you have to pay very close attention to the fees associated with munis in general. Munis however are very attractive bonds and they offer a tax-free return. Municipal bonds are however difficult for individuals to purchase since they come in large denominations. When dealing with bonds and stocks, corporate bonds produce very attractive yields, but they are difficult to find. They are highly rated, but investing in mutual funds may still be a better option if corporate bonds are not. For an investor looking to buy bonds, they an also invest in bonds funds that have all of the advantage of mutual funds. These benefits include a low minimum investment, professional management, and liquidity. They also do not have a fixed maturity date. Bonds are a great investment and offer great portfolio diversification. You must be sure that you determine your stocks to bonds ratio first. Stock investing is another education altogether, but investing in stocks is a great way to make money. Continue to study the stock market as well as the different types of stock investing and find something that works for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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