Difference between Stocks and Bonds
For an investor, stocks and bonds are both investments to earn money. For companies, these are methods to acquire funds for operational expenses. Neither the investors are willing to learn the difference between these two investment forms nor are the companies taking the initiative to inform people about them. Though, both are traded in share market and both- stocks and bonds are influenced by fluctuating interest rates and share market forces.
Companies need money to run their business venture, therefore, they sell stocks. The stocks are medium to find the investors who can shell out some money in lieu of some sort of ownership in the company. So, when you purchase stocks of a particular company, you give them money to run their operations, do your investments, get returns and actually are rewarded with ownership of the company. The fate, performance and management of the company decide your profit or loss, dooms day or big day. By purchasing stock, you are linked with fate of the company in stock market. The risk is always associated with the thrill of purchasing stocks. As a stake holder, you earn a dividend or a share of the profit made by company in the ratio of the numbers of stocks you have. The profit or loss entirely depends on the company and its performance in its respective field. If it’s an established company and is doing well in terms of profits and revenues- your big day or else it spells doom.
Bonds are issued by companies to raise funds for their development and expansion. They have interest rates, and are issued for a specific time period. This is more like debt- taken from people. A fixed interest is paid to bondholder after every six months. When you own a bond of a company, you do not have any kind of ownership in the company. When the date of bond expires, the company would pay back the amount you invested in its bond. It is usually risk free and safe investments if a person is looking for fixed monthly return.
Usually, it is seen that small or amateur investors play it safe and go with bonds whereas experienced players of stock market like it big and invest money in stocks. Any ill fate or good fortune of a company is outlawed by bonds. You would not be getting higher returns in the profits or face misfortune when a company has financial year. You will be just entitled to fix returns.