Bonds vs. Stocks: Which is better?
Usually, bonds and stocks will be the two choices for investment opportunities since these are the most popular. This raises a question of which one of the two is better for you. Well, this all depends on what type of investor you are. First, you have to know the differences between the two and make your decision based on that.
Before anything else, it’s important to know the difference between the two. Let’s start with stocks. Stocks are, in essence, is a representation of a part ownership of a company. A public listed company will offer part of their company to the stock market and allow people to buy a part of it.
Bonds, on the other hand, are debt securities that an issuer will offer to interested parties who are willing to buy it. Buyers will then earn through interest rates.
The Market Availability
Stocks are sold through the stock market while bonds are sold through the bonds market. Bonds and stocks will have their respective systems for buying and selling. For stocks, each country will have their own stock market wherein local stocks can be traded.
The bonds market, on the other hand, does not have a trading system. This means that as long as you see bonds for sale, you can buy it. There is no regulated market for bonds which means there is no need for a broker. This is unlike the stock market.
Earnings and How Profits Are Gain
To earn from bonds, you will have to rely on the interest rate that you can get. When you buy bonds, it’s like you are lending money to an issuer. When the issuer gets his ROI back, you will be given a fixed interest rate plus your principal amount. This is a safe type of investment, but the progress of profit is very slow. However, if you aren’t in a hurry and only aim to generate the money for future purposes, then bonds is the right one for you.
Stocks, on the other hand, you earn if the company earns. If you buy a share of stock, you only earn if the company’s value goes up. If it goes down, then you will incur a paper loss. Let’s say you buy shares in Singtel. If Singtel is doing well, then the value of their stocks will go up. This will result in you earning as well. Since you will be a part owner of the company, you get money when the company does. But this also means that you lose money when the company loses its value in the market.
To minimize the chance of you losing your money, you can invest your money on reputable companies that are already establish and doing quite well in the market. This way, you at least have an assurance that your money will generate interest in the long run. Some people choose to earn gradually. Thus, they choose to have bonds or low risk stock investments while others are a bit impatient and go for high risk investments. High risk investment investors will be able to double up their capital in no time, but the amount of risk is also double.
These are some of the differences between bonds and stocks. As you can see, bonds are safer than stocks, but stocks can yield you more earnings. So, the one you will pick as your investment medium will depend on your risk appetite. If you prefer bigger profits and don’t mind the greater risks, stocks are the way to go. But if you prefer to stay on the safe side, then bonds will be better.
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