January 11th, 2011 | 
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Every investor should consider bond investments in their portfolio as it plays an important role in maintaining a well balanced portfolio. A bond is an “IOU” issued by a corporation, government or governmental agency to cover the money the bond holder has lent. Bonds are not as exciting as stocks but they do play a critical role in the economy and in keeping your investment portfolio balanced.
There are two sides of the investing coin — stocks and bonds. An investor investing in stocks should also have a thorough knowledge of bonds. Bonds help keep your portfolio afloat in troubled times, since they are the other side of the investing coin. If a person owns stocks, he is a part owner of a company, whereas in case he is a bond holder he is a creditor of that company.
If we compare bonds with stocks we come to a conclusion that bonds generally have a lower rate of return than stocks, but the risk involved in investing in bond is comparatively low, as bonds are a much safer investment instrument. This safety and stability of bonds act as a counter to the fluctuations common to stocks. That is why it makes sense when an investor is blending stocks with bonds.
Investors should have a blend of stocks and bonds in their portfolio. Investors preferring more risk should have higher percentages of stocks in their portfolio, but most investors have a mix of stocks and bonds in their portfolio as bonds cover up the risks.
There are various options for the investor in bonds. He can invest in corporate bonds, government bonds or municipal bonds. The most secure bond investments are the US Treasury bonds. Backed by the US government, these bonds come in several maturities and denominations.
Blending stocks and bonds is a necessity for every investor in order to minimize the risk of the stock market.
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