Investing in Stocks and Bonds
Investing into stocks and bonds can be a very profitable thing. So, what are stock and bond investments, and why would you want to invest into them?
Lets look at stocks first. Basically these are just small percentages of a company, when you buy a stock you buy a small portion of the company. For example, if you bought a few shares of Pepsi stock then you are now a partial owner of the Pepsi company. As the company expands and grows over time then the stock would increase in price.
If this company offers a high dividend stock investors would be able to recieve some extra money as the company profits. If you own a dividend stock in a company that is making money then chances are you are getting a somewhat consistent cash flow from that investment.
Bonds are a little different. If the company needs to borrow money to finance their business expenses they may issue a bond. Investors that buy bonds don’t own part of the company and do not receive dividends.
But there are other advantages to buying a bond. They have helped the company borrow money to pay for something and in exchange they receive interest payments. This is similar to how a mortgage or credit card payment works; only you are receiving the money.
Bonds also have an expiration date. When they come due the investors will receieve payment for the full price of the bond. Then investors may choose to take that money and reinvest it into another bond to make more.
So, what is the better investment? That is up to each investor. Normally bonds are considered safer because it does not need a company to grow in order to make money. However if you take a look at a stock market graph is is plan to see that the higher risk also means higher rewards.
In the end deciding which security to invest your money into depends on your risk preference as well as how much time you have to let your money grow.