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01 October 2010 ~ 0 Comments

Stocks and Bonds: What’s the Difference?

Money is an essential part of life. We work and earn money for the comforts of life, educate our children and to increase our standard of living and so on. It is our human nature compels us to try to make money fast and hard. The fact that this greed, people invest their hard earned money in the stock market. Two popular financial instruments that most of us have heard about are the stocks and bonds. These two instruments are very popular among the masses. The idea behind these instruments is to provide an opportunity to invest their money in a particular company and become its investors to maximize their future profits. Both instruments are a good investment alternative for the money, but both have different roles to play in the stock market.

Bonds: What are the obligations? The answer to this question can be explained by the concept of loans. When you buy a bond, you are actually lending your money to the issuing party. Now this package will give you for your interest in the future. The value of bonds depends on market interest rate on this scenario. Bonds available for sale and purchase on the stock market opened. The value of money invested in bonds, which actually comes from the interest that investors earn on bonds. If you have a link that will attract interest of 4% and overall rates market interest is 3%, so you can sell the shares on the stock with a value higher than you actually bought it for.

Stocks: What are the Stocks? Stocks are shares of companies. An investor can invest in stocks to become part owner of the company. The Stocks reflect the stability of a company and an investor in order to avoid risks, to invest in the shares of the company that is reliable and stable. The shares are available in three categories, namely small-cap stocks and mid-large cap. These categories determine their roles in society.

Investors are aware that the stock market is quite risky, but if it is your advantage, he can shower and huge profits for you. New stock markets shows that long-term investments in stocks to outperform other asset classes. But on the other hand, during the volatile stock market conditions, people go to buy bonds in companies incorporated and because the bonds can adjust risk. Financial experts suggest that the bonds for stocks are not wise. Instead, investors should be more active and they need to examine how a type of instrument relates to another in terms of profitability and risk.

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