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Bonds And Equity – Learning The Basics Of Asset Allocation

Whether you are just starting to invest your money, or you consider yourself a seasoned pro, it can be worthwhile going over the basics. And what better place to start than by looking at two fundamental categories, which, along with cash and cash equivalents, make up the traditional assets class: bonds and equity. Much is made of the optimal way to allocate assets, and this article will briefly touch on that, as well as give you a brief but hopefully helpful rundown of these important terms.

Finally, this article will talk for a moment about finding the right wealth management option, and empowering yourself as an investor. It can be daunting trying to navigate your assets alone, and a service like Wealth Management Canada can connect you with trustworthy, vetted firms that can help you allocate your assets according to your short- and long-term goals. Let’s start, however, with a couple definitions.


What Are Bonds?

Bonds are, essentially IOUs issued by companies or governments. They are debt obligations, and you can think of each bond you buy as a small loan, which the company or entity must pay back to you over time, with interest. It is this periodic interest that makes bonds a good, if slow, source of income. If held until maturity, a bond can be a safe, consistent investment. Of course, there is a little more to it than that, but as far as basics are concerned, that is how a bond functions.


What Are Equities?

In this context at least, you can think of equities and stocks as synonymous. Equity investment involves buying stock shares in a company, and making your money from dividends – that is, the company’s distribution of profits – or capital gains – the money you make when you sell the stock for more than you paid for it. The nature of equities makes them more volatile than bonds, but stocks historically produce higher returns.


How To Empower Yourself As An Investor

Now that you know how each category functions, the question is how to distribute your assets. Do you want to invest in equities, which can offer higher returns, but carry higher risk of loss? Or do you want to invest in bonds, which produce a more modest but more consistent return? In reality, you will probably be choosing a mix of the two, the ratio of which will depend on certain personal factors like investment objectives, age and risk-aversion.

It can be tricky to parse out alone, which is why it’s important to partner with a reliable wealth management company, which you can find by using a wealth management service (like in the link above). A wealth management service, free to use, performs extensive due diligence on wealth managers and connect you with the ones that are the best fit for you. In turn, these wealth management companies will properly allocate your assets according to personal needs/wants.

Hopefully, this simple and quick rundown of bonds and equities has helped. Knowledge is a great first step toward taking charge of your financial future.