Stocks vs. Bonds Investment
June 16, 2011 Leave a comment
In investment world, you will always hear the word stocks (or equities) and bonds. These are both forms of investments.
Actually, stocks and bonds are both securities. The major difference between the two is that stockholders have an equity stake in the company (they are owners), whereas bondholders have a creditor stake in the company (they are lenders).
Risks and Returns
Bonds – this is suitable for an investor with a low to medium risk appetite. Normally, a coupon rate with fixed amount was paid either quarterly, semi-annually or annually.
Stocks – this is suitable for investor who wants higher returns and with a high risk appetite.
Bonds – usually have a defined terms or maturity. Normally, the bonds maturity period ranges from 1 year up to 30years. However, there were some bonds that have no maturity ( perpetuity bond).
Stocks – As long as the investor hold on the stocks. He has an equity stake (part ownership) of the company.
Bonds – the bonds prices move inversely with the interest rates. When the interest rates goes up the bond prices go down and vise versa, when the interest rates is down the bond prices is up.
Stocks – the stocks prices is based directly on the performance of the company. If the company is doing well, growing, and making a profits, then the price of the stocks follow. If it’s failing, the prices of the company stocks will likely decreases in value.
Both stocks and bonds are profitable investments. However, every investor should also assess the risk involve before jumping into these investments.
The key to wise investing is always a good analysis and research. Invest only on the business you know.