Difference between Stocks and bonds

Stocks and bonds are two main investment opportunities. Each has their own advantages and risks. To find which one is best among this and suits you the most, we handpicked three important topics to compare stocks and bonds.

1. Investment fundamental

• Stocks

When you invest in stock it means you buy the portion ownership of a specific company. In simple words you are an owner of the company. But based on the amount of stock percentage you own, you have the ownership percentage within the company. And if you are one of the owners of the company, then you have a special concern with the company’s growth and you focus on long term goals with having relationship with company.

• Bonds

When you invest in bonds it means you give a loan to the company (Like banks offer loans to public).in simple words investors offer loans to company for their growth. By investing in bonds we don’t have any ownership rights with the company. You only offer funds to the company to develop themselves without having any concern with their future growth or plans and implementations.

2. Returns

• Stocks

In stocks we can get money through dividends and stock value increase. As an owner of the company you have the rights to get a share of return based on company’s net profit. This is called dividends. Dividends are not always given annually, based on company to company it differs like quarterly dividends, semiannual dividends and annual dividends.

But the stock value is something different. You will get the return from stock value only if you sell your share to someone. It does fluctuate over time and unpredictable. This means you are no longer an owner of the company. So this is not the think which investors focused on. Investors mainly focused on dividends as returns over the time.in most cases investors reinvest the dividends into stocks again to expect the compound interest.

• Bonds

In bonds we can get money through interest, because as you know you are not an owner of the company you don’t have the rights to get returns from companies annual profit. then you can’t claim the dividends. Instead of that you gave loan to the company so company has to pay you interest until your bond maturity period. Bond interests also given quarterly, semiannually and annually.

Moreover you can get your capital which you gave as loan to the company at the end of maturity period. The returns in bonds are nearly fixed. For a certain capital our interest rate until the maturity period is fixed. People invest in bonds to get an return interest for their capital over time.

3. Risks

• Stocks

In stocks the risk factor is as one of the owner of the company you are going to face the risks which the company founder going through. Like if your company not performs well then your cash flow will decrease.it will leads to operate the company in loss. When a company not performing well more investors rejects to invest in the company so the financial stock market value of the company will decrease overtime. Then net profits will decrease it leads to dividends decrease.

If you want to end the relation with the company they the stock value is way more low than the price you bought .So you will lose a significance value in your capital also. Worst in the case if the company you invested in go bankrupt then you have the chance of losing all of your capital. That’s why it’s told to have the ownership with right company for long time.

• Bonds

Bond also has the risk like stocks. If the company you invested for bonds goes bankrupt, your capital will at risk. Moreover bonds have quality certificates and not all bonds pay interest discipline. Each has their own terms and conditions. You have to consider that set of things before investing in bonds. And if the project outcome of the bond not results as expected then it will show a delay in paying off the interest rates and maturity capital. Bonds also fluctuate but not as stocks. If you sell the bond before its maturity period they you have to sell it for a discount it leads to loss.

Which is best for you?

Risks are the very common thing in investment. There is nothing like riskless investment with good return. So don’t be so worried about risks. In stocks Always research on the fundamentals and bones of the company which you are planning to invest. Always try to maintain a discipline with your investment and focus on long term with compound interest. In bonds learn about the terms and conditions of each bonds, the quality certificate of each bond and the health of the company which offering the bond. Government bonds are safer than company bonds. But the returns are low compared to company bonds.

( If you wish to Watch a cool video explaining this topic – CLICK HERE )

Author’s Disclaimer

If you focusing of short time interest returns for your capital and expecting little risk then you can try bonds. But if you want to focus on long term reinvesting with huge return when getting out from the investment, then you can try stocks. But always remember in any investments don’t invest the money which you can’t afford to lose.