Business

Stocks vs. bonds: The key differences

As an investor, theres a wide range of asset classes that you can invest in to build a portfolio that aligns with your investment goals. Some assets tend to be riskier investments than others, representing different types of ownership and benefits for investors.

Two of the most common assets investors might add to their portfolio: stocks and bonds.

What are stocks and how do they work?

Stocks are a type of asset class that represent a partial ownership in a company. For companies, stocks serve as sort of a bargaining chip with investors. In exchange for a piece of the pie (company ownership and potential profit), companies are able to raise capital from selling shares to cover their costs and expand their business. Stocks are purchased and sold on stock exchanges, which act as the intermediary between investors and companies.

When the company does well, so do shareholders. If you own a share of stock of Apple as an example, you own a piece of the company and are entitled to its profits through either the stock price appreciating (increasing) or dividends (cash payments returning profits to shareholders), says Brendan Halleron, certified financial planner, AIF, BFA, and partner and financial planner at Affiance Financial in Minneapolis, MN.

But on the flipside, when a companys performance tanks, shareholders may feel the burn and see a decrease in the value of their shares.

Some risks of investing in a stock include headline risk, a news story that negatively affects a stocks price; insolvency risk, also known as bankruptcy risk; legislative risk, passing laws that are unfavorable to the companys industry; commodity risk, increased input costs of the companys goods; and overall economic risk, says Halleron. That might sound like a lot of risk, and its true, there are a lot of risks when investing in stocks, but in exchange, stocks generally present a better opportunity for investors to earn a higher rate of return.

What are bonds and how do they work?

A bond is essentially a loan from you, the investor, to a corporation, government entity, or other organization. In exchange for your capital, youll receive interest payments from the borrower until your loans term ends (i.e., the bond matures), and then theyll be expected to repay their loan in full. Investors can purchase bonds directly from the issuing government entity or corporation or through a brokerage.

While bonds are often deemed a safer asset and a steady income-earning investment, they are not without their own set of risks.

The main risks include interest rate risk, owning a bond with a lower interest rate than what you can buy on the market; and credit risk, an organization being unable to pay its debts, says Halleron. The reward for investing in bonds is stable cash payments at a stated interest rate over a defined period of timein other words, more certainty. In exchange for that, you sacrifice the potential opportunity to earn a higher return by investing elsewhere.

The key differences between stocks and bonds

Each type of asset works a little differently in what it represents, how profit is generated and distributed, and what kinds of rights investors are guaranteed. Before you invest in either asset, consider the following key differences between stocks and bonds:

How to choose the right asset type for your portfolio

Determining which asset class to invest in and the right split between stocks and bonds will come down to a few different factors, including your:

Risk tolerance: Your risk tolerance is the amount of loss youre willing to stomach if an investment goes south. Some investors are prepared to risk it all if it means a higher reward. Others are okay with smaller, safer profits. Your risk tolerance can also change over time depending on your financial situation and timeline. If youre younger and youre investing for retirement, you might be in a position to invest more money in riskier assets because you have time to make up for any losses you might incur on the way to hitting your goal. If youre older and dont have as much time to recover from potential losses, you might go the safer route and invest more money in safer, lower-risk assets.
Time horizon and investment goals: Your time horizon is the amount of time you expect to hold an investment before you need access to your money. Say youre investing to buy a house in three yearsthat would be considered a short-term time horizon, whereas a 20-something who is investing for retirement has a longer-term time horizon. Think carefully about your goal and when youll need to cash in on your investments. This can help guide your decision about the ideal percentage of your portfolio that should be invested in bonds vs. stocks. Generally, the shorter your time horizon, the more you want to invest in safer assets. With a longer horizon, you can afford to be a bit more of a risk-taker. Although this isnt a universal truth, individual investors may still opt to take on more risk even with a shorter time horizon.

Ideally, youll want your portfolio to be made up of a few different asset classes. Diversifying your asset mix with both stocks and bonds can help spread out some of the inherent risk that comes with investing.

A well-diversified portfolio reduces your overall risk by investing in a large variety of non-correlated assets. By doing so, your investment performance will never kill it (outperform the stock market), but you will also never be killed (lose all your money), says Halleron.

Nearly half of COVID patients still have symptoms after 4 months, new study finds

Almost half of COVID survivors globallyboth children and adultshave lingering symptoms four months later, according to a landmark new study.

Researchers at the University of Leicester in England performed an analysis of nearly 200 studies of prior COVID patients, involving nearly 750,000 people in all. The patientssome of whom were hospitalized and some of whom werentlived across the globe.

More than 45% of study participants had at least one lingering symptom four months out from their initial infection. A quarter of the patients reported fatigue, and a similar number said they felt pain or discomfort. Meanwhile, sleep issues, breathlessness, and problems participating in normal daily activities were reported in just under a quarter of patients, according to the study.

Often, no clinical abnormalities could be found to explain such symptoms. But some signs were reported in many patients who had been hospitalized with COVID, including changes in lung structure and function. An abnormal CT scan and/or X-rays were found in nearly half of previously hospitalized patients, in addition to a decreased capacity to diffuse carbon monoxide in nearly a third of patients.

Changes in pulmonary function are similar to those observed following other viral infections including SARS and MERS, the authors wrote.

When non-hospitalized COVID survivors were singled out, more than a third of them had lingering symptoms at four months, the study found.

The reasons as to why so many patients are experiencing Long Covid remains unknown, the authors wrote, adding that possible causes include organ damage, inflammation, altered immune systems, and psychological effects.

While some studies have found a higher rate of long COVID in females, the study out of Leicester didnt find that any particular age group or gender experienced s of the disabling condition. Researchers werent able to reliably assess any potential association with race, as only a quarter of studies examined provided participants race or ethnicity.

Nearly 20% of American adults whove had COVIDan estimated 50 millionreport having long COVID symptoms, according to data collected by the U.S. Census Bureau this summer.

Long COVID is roughly defined as symptoms that persist or appear long after the initial COVID infection is gone, but a consensus definition has not yet been broadly accepted. Many experts contend that the condition is best defined as a chronic fatigue syndrome-like condition that develops after COVID illness, similar to other post-viral syndromes that can occur after infection with herpes, Lyme disease, and even Ebola. Other post-COVID complications, like organ damage and post-intensive-care syndrome, should not be defined as long COVID, they say.

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Coinbase CEO Brian Armstrong thinks his company's revenue will fall at least another 50%

Coinbase Global Inc. Chief Executive Officer Brian Armstrong said the cryptocurrency exchanges revenue is set to be cut by half or more this year as declining prices and the collapse of rival FTX rattle investors confidence.

The rapid downfall of FTX capped what was already a brutal year for the cryptocurrency industry, with speculators in retreat as prices of some of the most frequently traded tokens tumbled. Coinbases shares have fallen more than 80% in 2022 and the companys third-quarter revenue was about one-fourth of what it was during the last three months of 2021, when the price of Bitcoin peaked.

Last year in 2021, we did about $7 billion of revenue and about $4 billion of positive EBITDA, and this year with everything coming down, its looking, you know, about roughly half that or less, Armstrong said in a wide-ranging interview on Bloombergs David Rubenstein Show: Peer-to-Peer Conversations, when asked about the companys revenue. In additional comments provided after the interview, a Coinbase spokesperson further clarified that they expect 2022 revenue to be less than half of 2021 revenue.

Coinbase has previously indicated it may see a 2022 loss of no more than $500 million based on adjusted EBITDA, a measure of earnings that excludes certain costs like interest and depreciation. The company didnt previously provide a full-year outlook for overall revenue, but Armstrongs estimate is in line with the approximately $3.2 billion expected by analysts, according to data compiled by Bloomberg.

The turmoil surrounding FTX deepened the pall hovering over the industry, with confidence already battered by the previous bankruptcy of lender Celsius Network. Another lender, BlockFi Inc., went bankrupt last month, citing issues tied to FTXs collapse.

Armstrong said the demise of Sam Bankman-Frieds FTX appears to have been the result of a massive fraud rather than mismanagement or accounting mistakes, as Bankman-Fried has conveyed in interviews since the bankruptcy. Bankman-Fried has not been charged with any wrongdoing.

It appears that they took customer funds from their exchange and actually commingled them or moved them into their hedge fund and then ended up in a very underwater position, Armstrong said. And that was, I believe, against their terms of service and against the law.

Prior to his downfall, Bankman-Fried advocated for crypto-friendly policies during his frequent visits to Washington, D.C. and was a major donor to Congressional races.

I think theres some really serious questions to be asked now about should some of that money be clawed back because it appears that it was stolen from customers, Armstrong said.

Despite the fallout from FTX, Armstrong said he plans to continue advocating for the industry on Capitol Hill and predicted that crypto-specific legislation could still get enacted over the next year. Regulations around stablecoins, centralized exchanges and custodians, as well as clarity on the definition of commodities and securities, should be among top focus, he said.

Theres still probably 20%, I would say, of Congress where theyre either just very hostile to it, or are just ignorant of it, but its not the majority view at this point, he said of cryptocurrencies. We can hopefully get something there in the US and then go for the rest of the G20 as well.

For more details from Coinbase CEO Brian Armstrong, watch The David Rubenstein Show: Peer-to-Peer Conversations to be aired Jan. 11th at 9pm NY on Bloomberg Television.

4 ways to boost your credit score

While it may be just three digits long, your credit score is one of the most important numbers in your day-to-day life.

This numberwhich is calculated by things like your payment history, how long youve had credit, and what sort of accounts you managecan dictate which financial products are available to you, how much youll pay in interest when borrowing money, and can even influence the premiums on your auto insurance policy.

Establishing and growing your credit score requires both dedication and time. However, there are some tools and programs you can use to both quickly establish and boost your credit score for free, especially if youre struggling to get approved for credit-based accounts in the first place.

Programs that help you boost your credit score for free

Building a good credit score can take years of dedication and effort, and it usually involves managing your loans, credit cards, and other consumer accounts responsibly.

But what if you dont have the credit necessary to access those accounts in the first place?

Historically, access to credit has been challenging or impossible to get for consumers with a thin credit file or those with no credit history, says Roy Ng, CEO of the fintech platform, Bond. Many underserved customers are unaware of options that are available to them besides a simple debit card. They do not realize there are ways to safely build credit when you do not have credit in the first place.

Here are four such options designed for consumers without creditor those with a low credit scorewhich can help boost your credit rating at no cost to you.

1. Experian Boost

Experian Boost is a credit-monitoring and boosting platform offered by Experian, one of the three credit reporting agencies. This free program enables you to not only track your credit activity with regular reports and alerts, but also raise your score and build a credit history with the monthly bills youre paying anyway. Using Experian Boost, the average user sees a credit score increase of 13 points.

With Experian Boost, you can opt in and include a variety of payment histories, such as your utility bills, rent payments, cell phone bill and even streaming services such as Netflix and Hulu. As you pay these accounts on-time each month, they will be added to your Experian credit report; since payment history accounts for about 35% of your FICO credit score, those small bills can add up to a big boost.

Experian Boost is free to use, and makes it easy to connect accounts. All you have to do is sign up and link the credit card or bank account from which you pay your bills. Experian Boost will automatically search for bills that have at least three on-time payments in the last six months, then add those to your credit file.

2. TurboTenant Rent Reporting

If you own your home, your mortgage lender is already reporting your monthly payments to one or more of the credit bureaus. If you rent, however, youll miss out on this beneficial credit score-boosting opportunity unless you sign up for a program like Rent Reporting by TurboTenant.

With TurboTenant, your on-time rent payments are automatically reported to TransUnion each month, at no additional cost to you. This allows you to build your payment history with one of your biggest monthly expenditures, without taking on any additional debt.

In order to use TurboTenants free service, your landlord will also need to sign up for a free account online. They can then opt into Rent Reporting; this allows them to either receive online rent payments through the platform, or simply record payments received directly.

Each month when your landlord reports an on-time payment received, the record will be added to your TransUnion credit report. If you ever need to turn off Rent Reporting, you can do so with a simple click online.

3. UltraFICO

Your FICO score, provided by the Fair Isaac Corporation, is the most widely-used and trusted credit scoring model available today. FICO, in a partnership with Experian, has recently introduced another optional credit model, called UltraFICO.

UltraFICO is a free, opt-in alternative credit-scoring model that uses different aspects of your daily financial life to generate a score, compared with the standard FICO. With UltraFICO, you will link up your checking, savings, and/or money market accounts. Your score is then determined by things like:

Your history of positive account balances
How long your accounts have been open
How often you conduct bank transactions (and how recently they occurred)
Whether or not you have cash on-hand

Your UltraFICO score doesnt affect your standard FICO score, nor will it replace your FICO. Once youve opted in, however, potential lenders and creditors can access this new score and use the result to better determine your creditworthiness.

4. Grow Credit

Grow Credit is another program that uses select monthly bills to boost your credit score. The way they accomplish this is a bit unique, however.

With Grow Credit, youre given a dedicated interest-free, secured Mastercard. Depending on which plan you choose, youll have a maximum monthly spending limit on that card. With the free plan, your spending limit is $17 per month.

Once you receive your card, you can link your existing subscription services on the Grow Credit platform; Grow Credit supports more than 100 subscription services including your Netflix, Hulu, and Pandora accounts, among others.

Youll then use the Grow Credit Mastercard to automatically pay for those subscription services each month. Your on-time payments will then be reported to each of the three bureaus (Experian, Equifax, and TransUnion), helping establish a payment history and grow your score.

The takeaway

Before you can begin boosting your credit score, its important to first recognize where youre starting your journey. If you dont know what is being reported about you on your credit, you cant begin to fix any issues, suggests Jeanne Kelly, founder of The Kelly Group and personal credit coach. It doesnt hurt your credit to pull your reports regularly from FreeAnnualReport.com and even track activity with a credit monitoring program.

Once you know where your credit score stands and have a goal in mind, using one of these free credit-boosting programs can help you establish a credit history, increase your score, and bump you closer to great credit without ever taking on additional debt.

Cathie Wood says the Fed is making a serious mistake by ignoring this critical recession indicator

ARK Invests Cathie Wood says that the Federal Reserves interest rate hikes have pushed the U.S. economy to the brink of recession and theres one key indicator that proves itthe only problem is that Fed officials are ignoring the data.

The yield curve is more inverted now than at any time since the early 80s when double-digit inflation was entrenched, Wood wrote in a Wednesday tweet. The bond market seems to be signaling that the Fed is making a serious mistake.

The yield curve describes the relationship between yields on U.S. government bonds with different durationsor maturity dates.

Typically, short term bonds yield less than long term bonds. If you were to graph this relationship, youd see an upward sloping curve. But when that relationship changes, and short term bonds yield more than long term bonds, the yield curve inverts.

And thats whats happening now: the yield on the 2 year Treasury was 4.32% on Wednesday, while the yield on the 10 year Treasury was just 3.50%

Typically, an inverted yield curve is pointing to a recession and/or lower than expected inflation, Wood explained.

Every recession since 1957 has been preceded by a yield curve inversion, and the St. Louis Federal Reserve describes yield curve inversions as good predictors of recessions. But they also note that theyre not perfectly correlated and the exact relationship isnt completely understood.

Wood argues that the inverted yield curve is more of a red flag for the Fed today than it was in the early 80s, however, because of the depth of the inversion and how long it has persisted. Theres now an 80 basis point gap between the yield on 10-year and 2-year Treasuries, and the yield curve has been inverted since early July.

The famed tech investor has spent the past year arguing that the Fed is making a mistake by raising interest rates, despite inflation remaining near a four-decade high.

Wood penned an open letter to the central bank in October asking officials to rethink their rate hikes and claiming that they are stoking deflation. And in November, she hinted that central bank officials risk sparking another Great Depression if they continue their inflation fight.

In our view, deflation is a much bigger risk than inflation, Wood reiterated on Wednesday. Commodity prices and massive retail discounts are corroborating this point of view.

While Wood isnt the only Fed critic to sound off about the risks of aggressive interest rates, she may be one of the ones with the most to gain.

Woods devotion to pursuing innovation in the stock market has come back to bite her this year. Her flagship fund, the ARK Innovation ETF, is down 64% year to date as rising interest rates continue to weigh on the high growth, high risk stocks that make up its holdings.

Seven out of the ARK Innovation ETFs 10 largest investmentsincluding Zoom Video, Block, Roku, UiPath, Teladoc, Unity Software, and Shopifyare down over 60% on the year.

And the three stocks that arentTesla, Exact Sciences, and CRISPRare down 56%, 44%, and 36% year-to-date, respectively.

Wood went on to defend ARK Invests investment philosophy on Wednesday, noting that oil prices have dropped to under $75 per barrel, but S&P energy sector ETF that tracks energy stocks is still close to a record high.

Meanwhile, many pure play, early stage innovation stocks have dropped below their coronavirus lows. Truth will win out, she wrote.

SEC Chair says the 'runway is getting shorter' for crypto companies

Securities and Exchange Commission Chair Gary Gensler stuck to his time-tested talking points in a Wednesday interview with Yahoo Finance even as criticism mounts for not doing anything to prevent the implosion of crypto exchange FTX.

Gensler, whos previously called crypto the Wild West and launched several enforcement actions against the sector, once again called on crypto companies operating in the country to come into compliance with U.S. securities laws or face the consequences.

The runway is getting shorter, Gensler told Yahoo Finance.

The SEC and the Commodity Futures Trading Commission have been jostling for control of crypto regulations for several years. A bill proposed by Sens. Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) earlier this year would give the CFTC more oversight, but Sen. Elizabeth Warren (D-Mass.) is working on a separate bill that instead would give more authority to the SEC, which has been tougher on crypto, according to Semafor.

Gensler reiterated in the Yahoo Finance interview that his agency would benefit from having more resources and more extraterritorial reach overseas, without elaborating on any specific enforcement methods.

The SEC chair refused to speak specifically about FTX and disgraced former CEO Sam Bankman-Fried, and would not say whether FTX had violated U.S. securities laws. Still, Gensler acknowledged that U.S. law requires companies to properly segregate funds.

The New York Stock Exchange doesnt also have a hedge fund on the side, and trade against their customers, he added.

Gensler has made headlines with a handful of high-profile enforcement actionswhat critics have called regulation by enforcementthat have done little to prevent wide-scale fraud or the misuse of customer funds, both of which FTX stands accused, or Terras $60 billion implosion.

Despite the criticism, Gensler told CNBC last month that building the evidence, building the facts, often takes time. And in the Yahoo Finance interview, Gensler said he was happy with some of his agencys enforcement actions, including those against BlockFi and Coinbase in the last couple of years.

As the contagion linked with FTXs collapse last month continues to spread, notable business leaders and politicians have continued to voice concerns over the sector.

In a Tuesday interview with CNBC, JPMorgan CEO Jamie Dimon compared cryptocurrencies to pet rocks, meanwhile in Congress, Warren and Sen. Dick Durbin (D-Ill.) have demanded FTX send over documents, including copies of balance sheets for its subsidiaries, according to CNN.

Apple's Tim Cook celebrates a 'new era of advanced manufacturing' and says the company will use American-made chips for the first time in a decade

When Chinese factories supplying Apples iPhone were roiled with COVID-19 outbreaks that resulted in lockdowns and employee walk-outs, it directly impacted global iPhone shipments.

Some estimates suggest that iPhone production could drop as much as 30% as a result of Chinas pandemic curbs.

To stem the risk of slowing the production of its devices overseas, Apple has decided to take matters into its own hands. Apple CEO Tim Cook confirmed on Tuesday that chips for Apples devices will now be made in the U.S.

Apple silicon unlocks a new level of performance for our users. And soon, many of these chips can be stamped Made in America, he wrote in a tweet.

Cook said that a new plant in Arizona, operated by contract chip maker Taiwan Semiconductor Manufacturing, would mark the start of a new era of advanced manufacturing in the U.S.

Apple silicon unlocks a new level of performance for our users. And soon, many of these chips can be stamped Made in America. The opening of TSMC's plant in Arizona marks a new era of advanced manufacturing in the U.S. and we are proud to become the sites largest customer. pic.twitter.com/rBoiEUwZaX
Tim Cook (@tim_cook) December 6, 2022

This will be the first time in a decade that Apple will use U.S.-made chips. The California-based company has relied largely on parts manufactured in Asian countries, particularly China. Most of the chips that power Apple devices are made in Taiwan.

The Apple CEO spoke at the TSMC plant under construction in Phoenix, along with President Joe Biden.

As many of you know, we work with TSMC to manufacture the chips that help power our products all over the world, Cook said during the speech, according to Bloomberg. And we look forward to expanding this work in the years to come as TSMC forms new and deeper roots in America.

Apple plans to make silicon chips for most of its devices at the Phoenix factory, Bloomberg reported. In the initial years of manufacturing, the plant will produce a smaller quantity of chips and will use inferior technology compared to what Apple would require for its gadgets in 2024.

The company did not immediately respond to Fortunes request for comment.

TSMC initially planned to spend $12 billion on the plant in Phoenix. The Taiwanese company subsequently increased its investment to approximately $40 billion, which it said is the largest foreign direct investment in Arizona history and one of the largest foreign direct investments in the history of the United States.

The chip-maker is reportedly eyeing another factory site in the U.S. as part of a larger effort to reduce the reliance on Asia for making much of the chips.

The factory in Arizona is set to open in 2024.