Difference between Stocks and Bonds We all know that the problem is not the money but how to spend it. For the new difference between stock markets and forex news, watching going through an investment newsletter can be a daunting task. Trying to figure out the difference between stocks and bonds from all the financial jargon can be a headache.
Stocks in their simplest form represent part ownership in a company. If the company is doing well, so are you. If it is doing poorly, so are you. Companies have realized that it is cheaper to raise funds for their activities by offering part ownership in their companies. Bonds on the other hand are a loan that you give to a company. The company or government will pay you interest for using your money for their activities.
The company owes you the interest plus the 100 pounds. A company must pay back any funds that accrue to a bondholder. The shareholder is taking a risk that the company will do well and even in bad times, he will continue holding the stock in the hope that things will get better. When deciding whether to invest in shares in a company or bonds, you should note that bond returns are fixed while the returns on shares can fluctuate and are not guaranteed.
You should also note that in case a company winds down or is bankrupt, the bondholders are paid first and the shareholders last. A good investment portfolio contains both stocks and bonds. If you are investor only interested in short term returns, then you should have more bonds than stocks in your investment portfolio. Bonds will provide you with a consistent income and in cases of market fluctuations, they offer a great cushion. However, if you are planning on investing your funds for longer than 10 years, then your investment portfolio should have more stocks as companies will tend to increase in value in the long term. As a rule of thumb, the younger you are, the more you should invest in stocks than bonds in your investment portfolio.