Stocks Vs Bonds

Bonds vs. Stocks

A bond is a long-term promissory note or debt investment in which an investor loans money to an entity that borrows the funds for a defined period of time at a fixed interest rate (Bingham p.207). A Stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings (investopedia.com). When I examined chapters 5-6 I wanted to know from a financial standpoints is a bond or stock the most beneficial? I found out “It depends”. It depends on if interest rates are high or low, increasing or decreasing, are you the investor or the company, and bond or stock type.

To begin, in buying a bond or stock the gain should always be higher than the cost. When purchasing a bond you become a creditor to the entity. The company is legally obligated to pay the face value of the bond. Bonds also have a maturity date and on that day unless a call provision is issued the bond owner will be paid on that date. When buying a bond you will always get back what you put into it. If the economy is sluggish and interest rates are dropping almost always the bond is more beneficial than stock. The disadvantage of bonds is the owners has absolutely no voting rights or say in the company. Also a bond is less liquid than stocks are and are more challenging to trade among other buyers if desired. Bonds can be more of financial investment than stocks are. This is because bonds usually come in increment of $1000 and $5000.

Upon purchasing stock the investor becomes an owner in the company. The advantage to stock purchase is voting rights and stock trade and sell easy to do. Another advantage to owning stock is it is more liquid than bonds. The profits received from owning stock are in direct correlations with the company’s earnings and losses. Stock holders unlike bonds holders are not guaranteed payment back (dividends) and could lose more or