This is one of the most famous questions asked by people who are looking to invest in their money. I’m sure you are also wondering which one is the better one to invest in. The answer is probably investing in both because you want to reduce the risks of losing your investment
Let’s look at a comparison between stocks and bonds
Share holder vs. lender
Buying a stock means you are purchasing a small part of the company. As a small partner to the company, you gain special privileges such as voting rights on issues that affect the future of the company. The most important part of having a stock is that you will get a percentage of the profits and the are paid out in form of dividend
Companies give bond offerings as a form of debt to raise money fpr themselves. Buying a bond is not like buying a stock, you do not get any ownership and their rights from the company.
How you make the money; bonds vs stocks
The price of the stock fluctuates depending on the market price and the profits of the company where you own stock. Its simple, if the company is making more profits then you get a chance of making more money. When the company is making less profit you get less money and may even loose on the investment you made.
Bond are much more easier; you receive interest payments form the company for the specified periods. It does not matter how the company profits are doing, even when the shares are affected negatively and positively by the economy they should pay as obligated as long as they are asking enough money. This means you get your principal amounts and interest and remain unaffected even in the company’s stormy weather.
What if the company goes bankrupt?
If the company you have invested your stock in files for bankruptcy, the stockers are treated last in line. Some stock holders may lose their intire investments. The stock holders will get their money when the bond holders and other loan holders get their money first
In bonds, the investors are the first in line to get their money from the remainder of the company’s finances. The money can be generated by the assets of the company being sold. Most of the time, the money is not enough to pay all these creditors. The money almost always go to the bond holders alone
Which one should you invest in?
Investing your money in stocks may be risky, but it has a potential to grow a lot of profits in the long run. As I mentioned, investing in both stocks and bonds gives you a chance to reach your maximum investment potential. Do not put all your investment into one company, you cannot predict the business and profits of the company in the long run and if anything happens; you will end up losing your investments and profits. Remember, bonds pay before stocks in case of a company’s downfall. Having an investment in both will save you some of your money in such cases.