Question

What are the trade-offs to consider in terms of risk and return when considering investing in stocks versus bonds?

Answer 1

There exists a risk-return trade off while investing money in money market funds like stocks or bonds.

While stocks represent ownership in an organization, bonds are long term debt issued to organization

Stocks: High return but high risk

Bonds: Low return but low risk

Thus, bonds are more safer than stocks because they gaurantee a fixed return of principal amount, unlike stocks whose returns are dependent on issue of dividends.