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Bond portfolios versus stock portfolios

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Bonds and stocks are very similar securities in many respects. For example, market value of both are determined by their expected future cash flows; and both show price sensitivity- some more, some less- to a set of common market factors. At the same time, some may even go further and state that when it comes to portfolio investing details, there is really no difference between the two either. What do you think? Do you think that investing in financial assets is just investing and it does not matter whether we are talking about bond portfolios or stock portfolios? What advice would you give to your clients? Explain your position in 3 to 4 paragraphs.

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Bond portfolios versus stock portfolios

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It is wrong to say that investing is just investing and it does not matter that one should invest in bonds or stocks. Infact, even if they look similar for a layman, there is lot of difference between their characterisitics. My advice to a client would be that one should invest in a portfolio which is best suited for his personal situation with respect to his risk taking capability, time horizon, future requirements, etc.

The choice of investment will depend on client's risk taking capabilities, his investment horizon and his short term and long term fund requirements. Bonds are typically safer and less volatile than stocks. Also, they ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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