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Posts Tagged ‘interest rate’

How Stock/Bond Investments Make Money

October 28th, 2011 No comments

In a previous post, I discussed why cash is not a good investment (due to inflation and and its inconsistency in its ability to generate reliable income). If you use your cash instead to invest in stocks or bonds what is it that you are getting and how does it make money?

First, Your Principal is at Risk

Holding cash in insured savings, checking accounts or in money market funds will give you virtual certainty of keeping your principal safe. So, even if interest rates go up or down at the very least you will still have your principal. When you make the transition to other investments, your principal is no longer safe. You can lose money or make money due to the change in value of the asset.

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