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If this is your first time investing money, you might be a little confused by all of the options available to you and the fact that even the safest investment carries real risk. Luckily, there are investment options that have less risk than others, and even the most advanced portfolio features both stocks and bonds that balance each other out, since, historically, stocks tend to be a higher risk investment and bonds tend to be a lower risk investment. Let's take a look at why both stocks and bonds are essential parts of any investment portfolio and how you can go about buying each. Bonds have been a major investment tool for as long as anyone can really remember. During times of strife, our government has issued war bonds to help raise money for the war effort, and cities and towns today still offer municipal bonds as a way for people to investment money will very little risk. A bond is essentially an agreement between an entity, such as a company or a government and an individual. A bond is issued when a company or government needs to raise money for investments. You can buy a bond for a set price and then, at a future date, you cash in the bond and receive a small amount of profit. The profit is the company's way of saying thank you for giving them the initial investment money that they hopefully turned a profit off of. There is a risk with bonds, but since the potential profit is so small from bonds, the risk associated with them is small. If you are interested in buying bonds to help offset the risk existent in your portfolio, you have several choices. The smartest thing to do is to contact your stock broker and have some bonds recommended that are the most likely to turn the biggest profit. You can also buy bonds directly from the company that is issuing them or you can buy them online with any of the major online stock trading websites. With stocks, you are stepping up the amount of risk that you are taking with your investment, but you are also increasing the chances of a much larger profit. When you buy a stock, you are buying a share in a company. What you are saying, essentially, is that you believe in a particular company and that you feel that the company is going to get bigger and better and turn an even bigger profit in the years to come. When that happens, the stock price for that company goes up and the shares you own are then worth more. You can then either sell the stocks you own and turn a tidy profit, or you can hang on to the shares you own and hope that the stock price goes even higher, which would translate into an even higher profit at a later date. Some stocks, known as blue chip stocks, have a solid record of turning a profit and are considered the safest of all stocks to buy. Other stocks in more volatile industries, such as technology, have no track record to back them at all, but have the possibility to turn a huge profit at a later date. Many healthy investment portfolios balance stock investments and bond investments to even out the amount of total risk present. You can buy stocks at all of the same places where you can buy bonds. Stocks and bonds are the two biggest building blocks of any healthy investment portfolio. They each have their positives and negatives, so make sure you understand both kinds before you make your final investment decisions.


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How to Invest Money - Stocks and Bonds