January 2022

Drawbacks of investing in bonds vs stocks?

Drawbacks of investing in bonds vs stocks?

Bonds and bond funds are a popular investment choice for many Americans. They are widely available, with little risk, and have yielded high returns historically. However, there are good reasons why most financial advisers do not recommend investing in bonds as heavily as most investors do. Despite their drawbacks, however, they are still among the safest ways to invest money, which is why most long-term investors hold some portion of their portfolio in them.


Mutual funds offer an excellent way to diversify even small investments over large stocks at once. Bond mutual funds can be advantageous for those who cannot afford or don’t wish to purchase individual bonds. However, mutual funds that contain only bonds operate under different rules than stock mutual funds, and there are several drawbacks you should be aware of before investing in them.

Expense ratio

First and foremost, bond mutual funds almost always have higher fees than stock mutual funds. The expense ratios for most bond mutual funds range from 0.5% to 1%, while the average stock mutual fund has an expense ratio of just 0 . 17%. These fees can quickly eat away at your profits, so it’s essential to compare the costs of various funds before investing.

In addition, when interest rates rise, bond prices fall. It’s known as “interest rate risk.” Because a bond’s value is directly related to the interest rate at which it can be re-sold, a bond issued when interest rates were at their nadir cannot be sold until these rates rise again to make the bond profitable for its owner.

Fluctuations in inflation

The other risk that arises from interest rate fluctuations is inflation, which occurs when the prices of goods and services increase throughout an economy. When this happens, it decreases the value of money since each dollar becomes relatively less valuable than before. Because bond prices are tied to interest rates, they will fall in value as inflation rises. It means investors should expect lower yields on their bonds due to inflation even if nominal interest rates stay low or decline further.

Interest Rate Risk

As stated above, a bond’s value is related to how much can be resold—an inverse relationship exists between the value of a bond and interest rates. Inversely, if interest rates go up, the price of a bond goes down. It’s not only common sense but also backed by academic research. Several theories determine how much a bonds price will drop in response to a change in interest rates, under what conditions they may fall more or less than some predicted amount, and even when bonds might rise due to a rise in the general level of interest rates.

High fees

Second, the high fees associated with most mutual funds sold on the market today make them poor investments for short-term investors. The average expense ratio across all mutual fund assets is 0 .25%, while any given bond mutual fund’s fee can be up to 1%. However, these fees are charged regardless of whether or not investors make money on their investments. Because short-term investors can quickly get out of a mutual fund before these fees start to eat into returns, they should only invest in bond funds if they’re willing to hold for several years, if not longer.


Suppose your investment goals don’t fall within the time frame during which you expect interest rates to rise; investing in bonds is a safe choice that will help you grow your wealth over time without taking much risk at all. However, suppose you need your money soon or intend to withdraw it as quickly as attractive returns appear elsewhere. In that case, you should be wary of the risks outlined above and consider other types of investments.

In conclusion

There are several drawbacks to investing in bond mutual funds. Although they can be advantageous for long-term investors, short-term investors and those who don’t want to take the time to select and monitor individual bonds individually should stay away.

Reversal strategy in forex trading

Reversal strategy in forex trading

Forex is the short form for Foreign Exchange and it is a market where currencies from different countries get traded. In this market, traders buy or sell currencies at current rates to make a profit.

What is a reversal strategy?

A reversal strategy in Forex trading means that a trader takes advantage of price movements going against their ‘trend’, i.e. when a currency stops going up or starts going down instead of continuing its previous trend. This strategy works well if the ‘trend’ has been strong enough to have lasted for some time and it’s possible to determine the very moment when the trend might be reversed.

In Forex trading, several factors affect prices through what is known as technical analysis. These include the foreign and domestic money supply and inflation rates, interest rates, and more. While some of these factors can be controlled, others cannot.

How to use a reversal strategy

To trade using a reversal strategy in forex trading, traders should learn how to identify the trend in prices at any given time. This makes it possible to determine when the trend might reverse. In this context, the most popular ways of identifying trends involve looking at charts with different types of price activity over a certain period of time. These trends give clear indications if a currency is going up or down after a specific time interval.

Every type of charting used for comparison involves plotting two sets of data against each other by using lines within the chart area itself. One set of data is known as ‘trend lines’ and the other one is called resistance and support levels. Trend lines are usually straight or wavy lines that connect at least three or more low points (or high points) in the chart area. Resistance levels are shown by horizontal lines around prices where many traders will attempt to sell at these price points. As for support, this is defined by a series of ascending prices, meaning it’s the level where buyers congregate to buy what they can afford before it goes up even more.

When these patterns become visible on charts, it shows that there might be a reversal coming soon, i.e., when the trend line changes direction and starts going down instead of continuing its previous direction upwards. This strategy works well if the trend has been strong enough to have lasted for some time and it is possible to determine when exactly it might be reversed

The two types of reversal trading

There are also two types of reversal patterns in Forex trading: reversal candlestick patterns and reversal bar patterns. Candlestick patterns are graphical formations that are made up of one or more candlesticks. These formations give clear indications as to whether a trend might reverse or not. Bar patterns, on the other hand, refer to the different types of bars that can form on charts and these also give indications to reversal moves.

Reversal strategy in Forex trading is based on the assumption that when a currency has been going up for some time and it reaches a resistance level, it is likely to start going down instead. This happens because, at this point, many traders who have bought the currency at lower prices will attempt to sell it at higher prices, thereby reversing the trend. The opposite is also true; when a currency has been going down for some time and it reaches a support level, this is likely to start going up again. This happens because, at this point, many traders who have sold the currency at lower prices will attempt to sell it at higher prices to take advantage of an increasing trend

Another example where the reversal strategy works well is when you see that there are no more buyers or sellers in the marketplace. As soon as this happens, most individuals with prior knowledge regarding the situation would go against the flow and try to sell their currencies in case they want to get out of trading them altogether. This can be seen in what is known by traders in Forex trading as; ‘no-trade zone’.

In conclusion

When one applies this strategy cautiously and doesn’t rely on it too much, it can be a very effective means of profiting in Forex trading. It is important to remember that not every trade will result in a reversal and sometimes the market will just move sideways. So, as always, traders should use stops to help protect their positions and minimize potential losses.