Tbond Vs. Stock Market

Deciding whether to invest in stocks or Treasury-backed bonds (T-Bonds) really comes down to your mentality. The basic question is how much you are willing to risk losing. Stocks and T-bonds both have advantages and disadvantages. Knowing these and weighing the pros and cons is important in coming up with an educated decision concerning your investment future.

Features

• Stocks are pieces of a firm. You profit when the value of the firm goes up, or at the least the price of the stock goes up. T-Bonds are loans made to the federal government at a guaranteed return payment. These two types of investment form markets where their value is bought and sold by traders and investors eager to make money.

Benefits (Bonds)

• Bonds that are backed by the Department of the Treasury are some of the world's safest investments. Their primary benefit is that the federal government, in theory, can never go out of business and seems to have a nearly infinite debt-carrying capacity. Therefore, investing in Treasury bonds is a way to make a small amount of money on a "sure thing." At the same time, Treasury securities have an immediate dissemination of price, meaning that you can track the value of the bond at any time without confusion. Most T-bonds are "uncallable," meaning that the government cannot recall these bonds as they see fit, as can happen with private sector bonds.

Benefits (Stock)

• The stock market is a way to make a great deal of money fairly quickly. But with this possible reward comes great risk. Owning stock is an important part of your investment portfolio because you can gain both by capital gain -- the increase in the value of the stock -- and the possibility of dividends, or payments that are mostly used to keep investors loyal.

Problems (Bonds)

• Bonds are always low yielding when backed by the Treasury, since the safety of the investment will not yield high rates. If interest rates go up, then the value of the bond goes down because you are guaranteed a payment. For that payment to stay the same, the value of the bond, from which the payment is figured, must fluctuate with the prime rate.

Problems (Stocks)

• The stock market is well known for its volatility. Sometimes, prices go up and down at a rapid rate without any obvious reason, frustrating the novice or intermediate investor. If you are interested in dividends, most firms are not required to pay them, and would rather plow the profit back into the company. While stocks are a potential source of wealth, they are rarely a source of income.