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Stocks And Bonds Investment FAQ
As a Canadian, should you invest mostly in bonds or in stocks? Is it wise to invest all your money in bonds or in stocks only? This is a difficult question when it comes to investing. Experts advise that you should invest a minimum amount in bonds, with stocks being a main part of your portfolio. It is always best to have a bit of both than to put all your eggs into one basket. In fact, portfolio diversification is a major instrument in terms of risk reduction.
From this perspective, the amount you invest and the type of investment instruments you include in your portfolio depend on the risk you are willing to take as well as on your individual circumstances. If you are risk-averse, you should not make risky investments. If you really need the cash, you should not invest it. If you are prone to panic attacks and anxiety, it is not advisable to take risks you cannot stomach, either. Regardless of what you decide to invest in, protecting the bare minimum is important – this is the money you will need post retirement. Anything above and beyond that, you can invest.
If you decide to invest in bonds, they should have a term of 5 years or less. Corporate bonds with longer terms entail major interest-rate risk and can lose value easily.
Among the factors underlying the decision how much to invest and what in are your minimum required monthly income, taxes, expected pension benefits, and the equity you will have in your home when you retire. Do not expect growth in value but look into current market data.
How are the expected returns calculated when investing in government bonds? You should take inflation and the interest rate into account. If the interest rate is 6 per cent and inflation is 3 per cent, then your return is 3 per cent (the first minus the second).
As for stocks, you need to ask yourself how much money you can really afford to lose. Multiply this sum by two. You should never invest more than that in stocks. Stocks carry a higher risk but also come with higher gains. Returns on bonds are in the range of 3-4 per cent on average, while returns on stocks can be up to five times that. Sometimes you win, sometimes you lose. Finally, in times of market instability, it is not important what you choose to invest in, right?
Investing in residential real estate is an alternative to investing in stocks and bonds. In fact, investment in real estate is by far the most common investment strategy. Home owners mostly buy property as their primary residence. In many cases, buyers do not have the full purchase price of the house, engaging a creditor such as a private lender, finance company, or a bank. In comparison to other types of real estate, residential real estate carries the lowest risk.
How to invest in bonds and stocks? This investment guide will give you a clue.
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