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Stocks and Fixed Income: Major Differences

Many people who are new to investing in stocks ask us about how much they can earn by investing on Passfolio. The answer is that it depends.

Many people who are new to investing in stocks ask us about how much they can earn by investing on Passfolio. The answer is that it depends. Unlike fixed income securities such as treasury bonds, stocks aren't designed to pay a consistent income to investors - their prices can go up or down at any time and dividends are not guaranteed.   

Stocks: Higher Risks, Higher Rewards

By investing in stocks, you expose your portfolio to variations in stock price which may result in large returns on your investment. However, exposure to market volatility also makes your portfolio more susceptible to considerable losses.

For instance, if you purchase a share of XYZ stock for 100 USD and the price of that stock rises to 120 USD, you could sell that stock for a 20% profit. However, there is no guarantee that the price of that stock will in fact rise and the return on your investment could be compromised if XYZ's earnings don't meet expectations or in the event of a recession, for instance. 

There are many variables that may affect your profits and potentially result in losses from your investment in stocks, so as a self-directed investor you should always put your money into companies you have reason to believe will in fact succeed. 

 

Fixed Income: A More Conservative Approach

Fixed-income securities are designed to pay a consistent income to investors via fixed interest payments. Fixed-income investors face a few potential problems, though. 

The first problem worth mentioning is interest risk - if interest rates rise substantially, fixed-income investments might not keep up. This is particularly an issue because fixed-income securities such as bonds aren't as liquid as stocks (your money gets tied up in the investment). 

Another risk for fixed-income investors is inflation, which represents a decrease in the purchasing power of a nation’s currency. If the rate of inflation rises, that will eat into your profits. Here's an example provided by Investopedia: If fixed-rate debt security pays a 2% return and inflation rises by 1.5%, the investor loses out, earning only a 0.5% return in real terms.


Invest in US stock with Passfolio


If you choose to invest in stocks, you can do so with Passfolio. We let people in more than 170 countries start investing in US stock with as little as $1 - all with no commission fees¹². We make investing in US assets accessible and even accept local deposit methods such as TEDs. 


Sign up to Passfolio today! Find out more at www.passfolio.us


¹ Please see our fractional shares disclosure.

² Securities less than $5 cost $0.02/share. Please see our disclosures on other charges.

Please read important legal disclosures that apply to your relationship with Passfolio.


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