How to determine whether stocks or bonds are right for you

Determining what type of investment is right for you.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Investment plan
• money
• bank or brokerage account

1. Determine how much money you have to invest. You simply can't decide what kind of investment is right for you without knowing how much you have to invest.

2. Decide exactly what you need out of your investment. Is this investment more about appreciation over the long haul or short-term capital preservation.

3. What kind of annual returns are you expecting on your investment? If you are expecting 8 or 9% a year, bonds aren't right for you.

4. How much risk are you willing to take on? If you want a guaranteed return with no risk, stocks aren't the answer for you.

5. After determining how risk averse you are and how what you need out of your investment, select either bonds or stocks. Bonds are the safer alternative and are a great choice for retirees and those looking to preserve capital. Stocks are a great choice for younger folks who are looking for the best average annual return over the long haul.

Tips & Warnings

• While stocks have an impressive long term average annual return, it's important to remember this is an average. Bear markets can be very tough to take.
• Bonds aren't going to make you rich overnight, so don't set your expectations too high.

[vikki9]

on 7/2/2008 Very interesting. Thank you for clarity. *****