Question

Should individuals invest in bonds or stocks? Explain in detail all of the factors one should consider when making an investment choice between stocks and bonds.

Answer 1

Weather a person should invest in bonds or stocks is an individual choice and depends upon many factors. The first factor is the risk taking ability of the individual. If the individual is willing to take risks he may invest a greater proportion in stocks. On the contrary risk averse individuals will prefer to invest in bonds.

The Other factor that should be taken into account is the volatility of Returns. An individual who is looking for a fixed return will invest in bonds such as a retired person. People who are looking for quick capital gains will prefer stocks because they do not carry a fixed rate of return.

Also the time available with an individual for trading should be taken into account. A passive investor will only invest in bonds where as an active investor will invest in stocks.