Stocks vs bonds (what they do)

Estimated time: ~3–5 minutes.

TL;DR

• Stocks are for long-term growth, but can crash hard.
• Bonds usually reduce portfolio swings and can fund rebalancing in bad years.
• Bonds are not “guaranteed”: when interest rates rise quickly, bond prices can fall.

Why stocks can be scary (and useful)

Stocks represent ownership in companies. Over long periods they tend to grow with the economy. But in bad years, stocks can drop 30–50%.

Why bonds exist in portfolios

Bonds are loans (to governments or companies). They often behave differently than stocks. A bond allocation can help you stay invested when stocks are falling.

When bonds disappoint

If interest rates rise fast, existing bonds become less attractive and their prices can drop. That’s why bond ETFs can have drawdowns too.

Common beginner mistake

Thinking “bonds = cash”. Bonds can lose money short-term — they’re just usually less volatile than stocks.