UK investors seeking income often face the challenge of deciding between bonds and equities for their investment portfolios. Each asset class has unique benefits and risks, making it crucial to understand their differences and evaluate risk tolerance, investment objectives and time horizon.
Below we look into the differences between bonds and equities, and why creating a well-diversified portfolio involves a mix of the two.
Getting the right portfolio mix
Equities and bonds exhibit lower correlation since they react differently to market events. As a result, they can complement each other in a well-diversified portfolio. While equities are considered riskier assets with potentially more volatile returns, bonds generally offer smaller, more stable returns. However, the right mix depends on an individual’s time horizon, investment goals and risk profile.
There are two primary types of financial securities: