Stocks Or Bonds Or Mutual Funds - Which is Best For You?

As a financial planner I was asked that question quite often. It was often phrased more like, "do you recommend that I invest in stocks, or bonds, or would mutual funds be better investments for me?"

As a salesperson that gave me a good (and honest) lead in, and the opportunity to tell new clients how I work with people and what it is that I do. I would explain that my first job was to get to know my clients and their financial goals. My second job was to then make investment recommendations and offer financial products to them that are appropriate to their specific circumstances.

In order to determine which investment(s) is best for you, it is necessary to first have your financial needs and objectives clearly in mind. Then, you can find investments that fit you.

This is difficult for most folks to do without professional help, since many of them don't know stocks from bonds from mutual funds. They tend to view these as three totally different and unique investment options, which is not the case.

If I were to answer the above question with a simple two-word answer, 98% of the time the answer would be "mutual funds." Let me explain why.

The vast majority of investors should invest in both stocks and bonds. In what ratio will depend on individual circumstances. The problem is that if you need to ask this question, odds are that you lack the knowledge and experience needed to select individual investment issues and manage a portfolio of securities.

ENTER, MUTUAL FUNDS. These investor packages are not an alternative to the other two investments, but rather a way to invest in them with professional money managers making all of the investment decisions for you.

My suggestion is this. First, get a good sound understanding of stocks and bonds. Then, invest in mutual funds that invest in these securities. You won't necessarily beat the stock market in this manner, but with a little effort you should end up with a well balanced investment portfolio.

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