Stocks or Bonds?

What you need to know about choosing

If you have thought about or spent any time investing, you probably know there are lots of choices to make. One of the most common choices involves choosing investment vehicles, or – more specifically – choosing between stocks and bonds. How do you know which is the best choice for you? Do you even have to choose? Of course, the best way to make a decision is to review your unique situation, such as your investment objectives, time horizon and risk tolerance. Then arm yourself with knowledge to choose the option that best matches your objectives.

Taking stock of ownership in a company

Before you begin buying up shares of stocks, it is important to understand what stocks are and how they work. In essence, stocks are investments you make in individual companies; they represent your shares of ownership. Stocks allow companies to raise the money they need to operate and grow, and they offer investors the opportunity to make returns on the money those investors provided to the companies through their stock purchases.

The greatest downside of investing in stocks is that they are riskier than other investments. They do, however, offer many benefits that could offset that risk, including:

  • Potentially greater returns. Historically, stocks have proven to be solid long-term investments.
  • Voting rights. Your ownership in a company gives you the ability to vote your shares and elect directors who may impact the financial health of the company.
  • Additional income potential. Though companies are not required to pay dividends to stockholders, many companies do.

Understanding bonds

If the risk of stocks concerns you, you may want to consider investing in bonds. A bond is a security issued by an authorized entity, promising to repay a borrowed amount of money under a set interest rate on a given, or “maturity,” date. Bonds are generally issued by the United States government, state and local governments, and corporations.

Though they do not get the press of stocks, bonds also offer some great benefits, including:

  • Lower risk. One of the biggest benefits of bonds is that they tend to be less volatile than stocks.
  • Income. Most bonds offer income on a regular basis.

Keep in mind, however, that bonds are not risk free, as some are issued by companies and entities that may be unable to pay back the money you invested.

Unlike stocks, which may require little initial investment (depending on the stock), bonds are generally purchased in amounts of $1,000.

So it all boils down to whether you are willing to take on additional risk. If you are younger and looking for a long-term investment, stocks might be the best choice for you. If however, you seek less risk and want income or asset protection, you may elect to invest in bonds.

Keep in mind that the most successful portfolios are the ones that are diversified, with a mix of investment classes and vehicles. For this reason, mutual funds, which invest in both stocks and bonds, might be a good choice.

Of course, the best way to determine your options is to sit down with one of our a licensed UCCU professionals who can review your situation and goals and construct a portfolio that matches your needs. Contact us at (801) 223-UCCU (8228) for more information on finding a UCCU Investment Service Representative that can help you.

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