Meet Julie, a 34-year-old physical therapist who is trying to set up a retirement account for herself. She goes to a party and meets Jim Bond, an older gent with an air of mystery about him.
Julie: Do you think that dip has sour cream in it? I'm allergic to dairy Maybe i should try the hummus...
Mr. B: I would—to be safe.
Julie: I was thinking that myself.
Mr. B: Why take the risk, that's my motto.
Julie: In your diet, or just in general?
Mr. B: Why don't we sit down. The name's Bond. I come from a large family that, with a few exceptions, is known for its reliability in financial matters.
Julie: Nice to meet you, I'm Julie. I'm a physical therapist.
Mr. B: Ah, you must work at the new hospital?
Julie: I just started. What a hassle, setting up my retirement and benefits. All I see are brochures dancing before my eyes.
Mr. B: We Bonds specialize in investing matters. Perhaps I can be of help.
Julie: That's so kind of you, but I don't even remember what I signed up for. I think it was a balanced something-or-other.
Mr. B: (coughing) Ah, yes. All things in moderation, as they say.
Julie: (relieved) So that sounds like a reasonable investment strategy?
Mr. B: Well, balance is important. The idea is that stocks, or equities, provide a higher return—but at greater risk. Bonds, generally, offer a lower yield, but less risk. Having both in your portfolio is a way to balance risk and return so that, one hopes, your gains are steady.
Julie: You know, the hummus is really good.
Mr. B: It looks quite fresh.
Julie: To be honest, I get how stocks work, but bonds are beyond me.
Mr. B: A bond is essentially a loan. You loan, say, $10,000 of your money to a city or state, or to the federal government—or to a corporation—for 10 years. If your bond pays 3% interest, you would get $300 per year on top of your $10,000.
Julie: Got it. Stocks are always going up and down, but bonds stay the same?
Mr. B: It's complicated, but yes, generally speaking. That's why bonds are often called fixed-income investments, because the return is steady.
Julie: (looking at her cell) Oops, that's Karl. I'm late for our movie date, so I'd better hop. But I've really enjoyed talking to you.
Mr. B: Delightful. Here is my card, if you'd like to talk again
Will Julie call Mr. B? Will she change her asset allocation? Who the heck is Karl? Stay tuned for the next episode of "As the Portfolio Turns."
This new series was made possible by DailyWorth expert and financial planner, Galia Gichon, creator of the "My Money Matters" kit, featured in the New York Times.