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In observance of the Christmas Day federal holiday, the New York Stock Exchange and Capital Group’s U.S. offices will close early on Wednesday, December 24 and will be closed on Thursday, December 25. On December 24, the New York Stock Exchange (NYSE) will close at 1 p.m. (ET) and our service centers will close at 2 p.m. (ET)

Pros and cons of stocks and bonds

Stocks and bonds each have a different level of risk and behave differently in response to changes in the financial markets. They may also be key ingredients in your mutual funds.

Putting portions of your money into different types of investments could help you in case some of them don’t measure up.

Stocks

Pros

  • Stocks typically have potential for higher returns compared with other types of investments over the long term.
  • Some stocks pay dividends, which can cushion a drop in share price, provide extra income or be used to buy more shares.

Cons

  • Stock prices can rise and fall dramatically.
  • There is no guaranteed return.

Bonds

Pros

  • Bonds tend to rise and fall less dramatically than stocks, which means their prices may fluctuate less.
  • Certain bonds can provide a level of income stability.
  • Some bonds, such as U.S. Treasuries, can provide both stability and liquidity.

Cons

  • Historically, bonds have provided lower long-term returns than stocks.
  • Bond prices fall when interest rates go up. Long-term bonds, especially, suffer from price fluctuations as interest rates rise and fall.

As you can see, each type of investment has its own potential rewards and risks. Stocks offer an opportunity for higher long-term returns compared with bonds but come with greater risk. Bonds are generally more stable than stocks but have provided lower long-term returns.

By owning a mix of different investments, you’re diversifying your portfolio. Doing so can curb the risks you’d assume by putting all of your money in a single type of investment.

Managing risk

Find out about investing risk and determine how much you can handle.

Asset allocation models

Use our sample portfolios as a guide to build your investment strategy.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.