WHY YOU NEED STOCKS AND BONDS

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

To put it mildly, 1998 was an eventful year for investors. The stock market continued its uninterrupted rise for the first six months, then stumbled. By the end of August, all of its gains for the year had been more than wiped out. But the market turned around again and hovered around 9,000 in December.

These results translated to the mutual fund market, as well. Some stock mutual funds experienced a trying year, but bond funds generally performed well.

This was not surprising. In nine out of the 10 years since 1930 in which equities experienced negative returns, intermediate-term Treasury securities earned positive returns.

When stocks go down, bonds generally go up. This relationship between equity and debt holds true not only in the United States but also in foreign markets. Since 1990, Japan's Nikkei Index of stocks has fallen about 65 percent. In the same period, an index of Japanese bonds has risen about 90 percent.

However, over the long term, stocks have consistently outperformed bonds in total return. In the past 25 years, the Dow Jones industrial average has risen more than 2,500 percent, an annual average of about 14 percent.

These long-term gains were not without interruption. One study of that period showed that in 112 of those 300 months -- three out of every eight -- a portfolio that mirrored the Dow would have lost money. Losses of 5 percent or more a month were not uncommon.

That's where bonds come in. In fact, as global financial markets become more uncertain, top-rated government and corporate bonds become even more important.

So should you invest in stocks or bonds? The answer is, both. When one segment of a portfolio experiences troubled water, the other serves as a safe harbor. It's called diversification.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.