Expert: Paul Henneman - 12/4/2009

Question
why buy bonds and not stocks

Answer
Thank you for your question!
  Unfortunately this is a huge issue, and it really depends on what type of investor you are. To be very brief, typically bonds are much safer investments than stocks, if you buy the right ones.  The returns over time are much lower as well. For example, a stock portfolio could average perhaps 11% per year return (that is market average, it is possible to do better) over a long period of time. But some years will be good, others very bad. For example, at one point last year the markets has lost about 50% of their value during the current recession. They have rebounded since then.
   But bonds are much more stable, and pay out regardless. Unless the the company defaults, a bond portfolio is almost almost positive, without negative years. But the returns are less, a fairly conservative bond portfolio is therefore very stable, but may return half or less over a long time period that a stock portfolio will.
   The general guideline is that younger investors can have more funds in stocks, because there are many decades of investing ahead of them. If there is a very bad year, or two, this is made up over time in the future with good years, averaging out over time to good returns. But for older people, a bad year can be devastating. Typically older investors are more heavily invested in bonds and other safer investments than they are in stocks.

I hope that this helps, please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com