In the fast-paced world of healthcare, it’s important to take care of yourself, physically, emotionally, and financially. Financial care includes increasing your financial literacy, creating a budget, cutting costs, saving, and considering investing. When it comes to investing, you may wonder about the difference between stocks vs bonds.
Read on to expand your financial literacy to help answer stocks vs bonds, which is better?
Setting the Stage
Imagine you’re at the nurse’s station charting. You overhear Dr. Jones and Dr. Smith discussing investing. Dr. Jones is talking about the stocks he’s invested in. Dr. Smith pushes back and talks about the bonds she just bought. You’re interested because you are ready to invest but you’re confused about the two. As you listen to the two doctors, you cannot decide which is better, stocks vs bonds. Let’s explore the jargon to help you decide if it’s time for you to consider investing.
What are Stocks?
Stocks are ownership in a company. When you buy stock, you’re a partial owner of that company. As the company grows and profits, your stock’s value can increase. You can make money when you sell your stock at a profit. You may also receive money from dividends, if the Board of Directors approves them.
But stocks also have risks. One risk is losing your investment if the company goes bankrupt. Another risk is market swing. Much like a rapid change in a patient’s condition, stock prices can change rapidly too. And the change isn’t always in your favor. Before you invest in stocks, you want to know the amount of risk you are willing to take. Investing in stocks requires research, a good understanding of the market, and a willingness to accept risk.
What are Bonds?
Bonds are like loans you give to governments or corporations. When you buy a bond, you lend money to the company or government. In exchange, the aim is to receive interest payments, usually quarterly, as well as your investment back when the bond matures.
Bonds aim to supply a consistent stream of income in the form of interest payments. They are considered less risky than stocks. This makes bonds a suitable choice for investors who are willing to accept potentially lower returns compared to stocks.
Diversification: Seeking Financial Balance
Nursing relies on a diverse set of skills. The same principle applies to investing. A well-rounded portfolio usually includes a mix of both stocks and bonds. This diversification can help balance out the risks and potential rewards. Having a variety of investments can help protect your financial health if one sector or asset class faces challenges.
Time Horizon: Charting Your Course
As nurses, we know patient care takes time. Similarly, investing requires a time horizon. This is the length of time you plan to hold onto your investments. Your time horizon should guide your choice between stocks vs bonds.
If you’re in it for the long haul, like saving for retirement, you might have a longer time horizon. This allows you to weather the ups and downs of the stock market, potentially benefiting from its growth over time. On the other hand, if you have a shorter time horizon, bonds might be ideal to help ensure you get back your initial investment with some interest.
Just as nursing demands a thoughtful and individualized approach, so does investing. Stocks and bonds aim to offer different routes to potentially grow your money. The best path for you depends on your goals, risk tolerance, and time horizon.
The next time you hear two doctors discussing stocks vs bonds at the station, you can smile with confidence because you know the difference. Remember, there’s no one-size-fits-all answer. Stocks vs bonds is about finding a mix that suits your financial goals. Consider talking with a Financial Advisor to help you decide if investing fits your financial plan.
Georgene Collins, RICP®, RN, PhD, MBA is a registered nurse turned Financial Advisor at Airey Financial Group. Georgene helps other nurses take control of their finances and prepare for retirement. Georgene began her career with Airey Financial Group in 2017 after retiring from 30 years in healthcare.
Georgene holds the Retirement Income Certified Professional (RICP®) designation from The American College of Financial Services. She holds health and life insurance licenses and a long-term care certificate in Indiana and Illinois. Georgene is a Registered Representative and Investment Advisor Representative and has earned the FINRA Series 63 and 65 registrations.