Basic Concepts of Stocks and Bonds With David Adefeso

Searching for accurate personal financing planning can be overwhelming! That’s why The Institute of Financial Wellness provides unbiased and factual financial education and services to assist with your personal finances and investment portfolio. On our recent podcast, our financial consulting group invited David Adefeso, Harvard University MBA graduate & CEO of Sootchy Inc and TPG, to discuss the basic concepts of stocks and bonds to help individuals with financial planning and also to help them diversify their investment portfolios.

What You Need to Know About Bonds

David Adefeso, a financial consulting expert, stresses that you should become familiar with bonds if you are looking to diversify your investment portfolio. Bonds are “loans” that you purchase, and the government or corporation you purchased from must return your investment with interest. There are many types of this passive income, including corporate bonds, municipality bonds, treasury bonds, and more. While bonds are considered a conservative alternative to stocks, bonds help protect your investment because the loan has to be repaid in full.

How Do Stocks Work?

While the basic concepts of bonds and stocks are similar, there is one key difference. When you purchase a stock, you receive an ownership interest in that company, while with bonds, you do not. Purchasing stocks is betting on the future of that company. You acquire passive income when the company does well but lose money if the company does not perform, which is why purchasing stocks comes with a certain degree of risk. When deciding what bonds and stocks to purchase, you can do the research yourself or turn to a fund manager to help manage your investment portfolio.

How Does a Fund Manager Help Your Investment Portfolio?

While you now know the basics of bonds and stocks, it still takes time to research the best available bonds and stocks for your potential passive income investments. A professional fund manager helps determine the best ways to make passive income such as bonds and stocks by researching and managing the investment for you. Experienced fund managers might suggest investing in a mutual fund. Mutual funds are collections of similar stocks or bonds purchased together and managed by a fund manager to diversify your investment portfolio. Mutual funds are great tools for investors since you can purchase different stocks from various companies rather than individually purchasing stocks one by one.

Index Funds vs. Mutual Funds vs. Exchange Traded Funds

While learning the basics of stocks and bonds, Adefeso says you should become familiar with the different types of mutual funds, index funds, and exchange-traded funds.

  • Mutual funds are a collection of stocks or bonds purchased together. They tend to be more expensive than the index and exchange-traded funds as a fund manager oversees them.
  • Index funds are like mutual funds but with one key difference. While index funds are also a collection of stocks and bonds purchased together in an umbrella, they are not managed by anyone.
  • Exchange-Traded Funds, or ETFs, are a collection of stocks or bonds purchased together under an umbrella but are passively managed. While mutual funds can only be purchased or traded once a day, you can actively trade exchange-traded funds throughout the day.

While all options have pros and cons, it is best to speak with a personal financial planning professional like David Adefeso. A professional can assist you as you start to invest in stocks and bonds to generate passive income and diversify your investment portfolio. The IFW has hundreds of financial planning professionals that can help you create a qualified retirement plan and investment portfolio.  Check out all the financial education and resources available for you!

Contact Our Personal Financial Planning Experts!

Our personal financial planning experts tailor our financial education and services to your personal income and financial goals. Consult with the IFW Professional Network for available financial resources concerning the best investments for you. Contact us for complimentary consultations to help you with your financial goals, or sign up for our IFW newsletter for exclusive content, resources, and tips today!

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