AboutWarren Boroson Expertise Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.
Experience Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.
Expert: Warren Boroson Date: 2/23/2005 Subject: What are Mutual Bonds?
Question Hi Warren, I was looking to start investing in stocks. What is the difference between bonds and stocks? I was told that for a beginner, that it is best to invest in Mutual bonds and not Company Stocks. Why is that? Any info is greatly appreciated. And if you know of any web sites that I could go to so I can learn would also be useful. Thanks for you time, Dan
Answer Dear Dan:
Stocks are ownership, bonds are loanership.
Stocks give you part ownership of a corporation. Like Google or Johnson & Johnson. Older corporations may pay you dividends--usually in the form of money. Stocks are more risky in general than bonds, but have returned far more over the years. Among the safest stocks are blue chips--big, prosperous companies like JNJ.
With bonds, you are lending money--to a corporation, to the government, whatever. Typically you get paid interest, and after a period of years your principal is returned. The safest bonds are short-term bonds issued by the U.S. Treasury or by blue-chip corporations. Long-term bonds, and bonds issued by shaky corporations (junk bonds, are very risky. The biggest danger to bonds: Interest rates go up, and your bonds are worth less.
A beginning investor SHOULD have stocks. NOT just bonds or bond funds Especially stocks inside a mutual fund, where you typically have a variety of stocks along with a fund manager who (you hope)knows when to sell and when buy. But a beginner also should have bonds, to dampen the volatility of stocks. A crude rule: Take your age, subtract it from 100, and put the balance in stocks.
A good fund for a beginner is a balanced or hybrid fund, which has a big exposure to both stocks and bonds. A good one: Vanguard Balanced Index. Another: Fidelity Puritan.
For more information, call Vanguard, Fidelity, and T. Rowe Price and ask for free literature. Let me know if you need their phone numbers.
I hope this helps!
