Stocks and Bonds

We develop a personalized asset allocation policy based on your needs and objectives, and stocks and bonds are an important part of this plan. We want to help you maximize your investment returns while minimizing your risk through the carefully diversified allocation of your assets.

One of the differences between stocks vs. bonds is structural. Bonds represent debts, and they exist as securities for those debts. Bonds are a record that the debtor owes something to the investor. Stocks, however, represent the interest of the investor. They are a record that the investor has an ownership right.

Understanding Investment Bonds

To start at the beginning, let’s ask, what is a bond? A bond is a kind of debt security where investors pay now in return for a promise of future payment at the end of the borrowing period, or when the bond “matures.” As noted, a bond represents a debt rather than an interest.

Both governments and corporations can sell bonds to investors. They later repay to the investor both the face value of the bond, known as the principal, as well as a previously determined interest rate.

Government Securities

“Government securities” refers to bonds issued by the government to investors. When it comes to risk management, experts consider this kind of investment one of the safest, as there is little chance of non-return on the investment and there is a determined maturity date and payout. Government securities are issued and backed of the Treasury, and include treasury bills and treasury notes.

The government sells investment bonds both through a primary market (when the bonds are first available) as well as through a secondary market later in the bonds’ lives. The Federal Reserve Bank keeps track of investors and bond amounts, interest rates, and maturity dates.

Treasury Bills

These securities issued by the government have a relatively short duration. The government issues them often, and the maturity dates range from one month to one year. The investor is not paid interest regularly; rather, the total payment at maturity will include interest. Longer maturity periods mean higher interest rates.

Investors can purchase treasury bill investment bonds at government auctions (the primary market) or on the secondary market. At an auction, investors place either competitive or non-competitive bids.

Though these investment bonds are considered safer by risk management experts, treasury bills can still shift in initial price from quarter to quarter depending on the state of the economy and other factors, affecting the expected return on investment. Additionally, investment bonds purchased on the secondary market can be more open to risk.

Treasury Notes

Unlike a treasury bill, treasury notes can have a maturity time of over a year. The maturity period can range up to ten years, also also comes with a fixed interest rate. Treasury notes can also be bought by investors with either competitive or noncompetitive bids.

Instead of waiting until maturity for all payment, the government pays interest every six months during a treasury note’s life. A treasury note is not the same thing as a treasury bond, but there is only one difference between the two - a treasury bond can have a maturity period of up to 30 years.

Investing in Stocks

As noted, stocks are set apart from bonds by what they represent. Bonds represent debts, and stocks represent interests. Stock trading involves an investor purchasing shares of the company that is selling stock. The investor, in this way, has an interest in the company, because she owns a part of it, or “common stock.”

Owners of common stock are able to participate in the company’s affairs. They have votes when it comes time to choose directors for the board, and also when there are potential changes to corporate structure and policy. However, that ownership stake only stretches so far; if the company liquidates, common stock holders receive asset payments only after all other debts and obligations have been paid (if anything is left).

The dollar value of stock rises as the company grows; therefore, it is riskier to invest in stocks than bonds, since company failures can lead to lower stock prices. However, the potential returns for stocks can also be much greater. Risk management involves maintaining a careful balance of investments based on these differences.

Establishing a Healthy Mix of Stocks and Bonds

A healthy mix of investments represented by stocks and bonds helps ensure target returns while managing your risk. Our financial advisors are guided by your investment goals as they diversify your portfolio.

We will make sure that you invest your assets in the best mix of stocks of bonds for your situation. Our experts will engage in risk management based on your circumstances and the health of the market in order to make careful and informed decisions. Diversification is key to making sure that regardless of what happens, you are maximizing your potential returns on your investments as a whole.