What Are the Respective Pros and Cons of Stocks and Bonds

Question

Examlex · Accepted Answer

The Answer is In brief,stocks provide on average a higher rate of return over the long run,but with greater risk over the short run.That is,a given amount of money invested today will most likely be worth more a decade from now if it is invested in stocks than if it is invested in bonds.However,stocks are subject to large up-and-down swings in value,while the money invested in bonds will grow more predictably,albeit more slowly.This makes stocks a better investment for someone who will not need to see a profit anytime soon,and bonds a better investment for someone who cannot afford any short-term setbacks.This difference between stocks and bonds is illustrated by a graph of the value of $100,invested in 1960,over the years 1960-2011. <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB4870/11eab9e7_e334_70c2_b53a_a99d4927fe77_TB4870_00.jpg" alt="In brief,stocks provide on average a higher rate of return over the long run,but with greater risk over the short run.That is,a given amount of money invested today will most likely be worth more a decade from now if it is invested in stocks than if it is invested in bonds.However,stocks are subject to large up-and-down swings in value,while the money invested in bonds will grow more predictably,albeit more slowly.This makes stocks a better investment for someone who will not need to see a profit anytime soon,and bonds a better investment for someone who cannot afford any short-term setbacks.This difference between stocks and bonds is illustrated by a graph of the value of $100,invested in 1960,over the years 1960-2011.   (For the student answer,a qualitative version of the graph suffices.)" class="answers-bank-image d-block" rel="preload" > (For the student answer,a qualitative version of the graph suffices.)

What Are the Respective Pros and Cons of Stocks and Bonds

Definitions: