After years of a riding a bull market, economic influences have investors on a wild ride where peaks and dips are part of daily investing, MarketWatch reports. What should the average investor do, especially if you are new to the market?
Market volatility is scary, but should not deter investors. “No one likes to lose money,” Eric Roberge, a certified financial planner told CNN. “But it’s important to take a long-term view and not make decisions in short-term volatility.” Not sure where to start? We’ve got your back.
1. Know the difference between stocks and bonds
Stocks are shares of interest ownership in a company, whereas bonds are a debt agreement where the company pays the principal amount on a set date, according to Accounting Coach.
Investors earn dividends on stocks as long as the company declares one and bonds pay fixed interest typically every six months. You are likely to see more return but higher risk with stocks.
2. Consider government bonds
U.S. government issued bonds are treasuries or “T-bills.” State or local governments issue municipal bonds or “munis.”
Treasury bonds are considered to be very safe, nearly risk-free in countries with a stable government. While municipal bonds are riskier than treasuries, bondholders are free from federal tax, some being triple-tax free, meaning the bond is tax exempt on the federal, state, and municipal level.