Stocks and Bonds

Topics: Investment, Finance, Rate of return Pages: 2 (411 words) Published: November 10, 2008
Stocks and bonds are forms of investments in which you have the opportunity to invest your money in a certain corporation, organization, or company with the possibility of future profits. (1) Stocks are mainly shares in a company, when you invest in some company's stocks you are buying ownership in that company, stock holders receive a percentage of the company's profit. While when investing in bonds you are loaning money to the company with the promise that this company will pay you back the bonds' amount plus a pre-agreed interest rate on a specified time period. Companies may need to raise money to expand or to finance their businesses, issuing bonds is one way to do this, another way may be requesting a loan from a bank or issuing stocks to investors. Emerging companies may prefer issuing stocks to raise capital which facilitates its growth without the burden of increasing dept, on the other hand larger companies may prefer to raise capital by issuing bonds without further splitting of its ownership. Choosing to invest in one form and not the other depends mainly on your investments' goals and your personal nature (i.e. if you're a risk taker or not). Although stocks and bonds can be successful forms of investments, they are not risk-free. Unlike bonds, stocks fluctuate depending on the company's performance. Bondholders are not affected by the company's status as they are paid a fixed return. Bonds can fluctuate according to the fluctuation of the interest rate in the market but are still considered a more secure investment than stocks bearing in mind the risk of not being paid back the principal amount of the bond. Stocks could generate a much higher return on the long run than bonds, and penny stocks (stocks of new starting out companies) can result in enormous investment returns in the future. Obviously, risks involved in stocks and bonds investments can be controlled by carefully assessing the company and the market you are investing in. (2) You should...

References: 1. Markus Heitkoetter, "Stocks VS Bonds - Differences and Risks",
2. Benjamin Wise," Stocks Versus Bonds Who Wins?",
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