The Financial Sector $-$ End of Chapter Problem

You get a large bonus at the end of the year that you don't plan on spending anytime soon. Should you put your money in stocks, in bonds, or in the bank as savings? What factors inform your decision?

The best strategy is to

choose a couple companies you like and use all of the money to purchase stock in those companies. If you like the companies they will probably out$-$perform the market.

invest small amounts of the money in many different investments, including stocks, bonds, and savings accounts. You can minimize risk by diversifying.

keep the money in your checking account until you need it$,$ even if that isn't for several years. There is no risk associated with a checking account and the return is higher.

look for the stock or bond which has performed the best over the last year and put all of the money into that stock or bond. There is little chance the firms will not do as well in the future.