Just as a company can raise money by issuing and allowing people to buy its stock, companies can also raise money by issuing debt in the form of a bond offering. When you buy a bond you are not getting any ownership in the company, but rather you are buying a piece Of the company’s debt. As a bond holder you have no voting rights and do not get to share in the profits of the company, however you do receive other advantages that you do not get when buying stock in a company.
Bonds vs.. Stocks – How you Make Money One of the primary reasons why the price of a stock goes up or down is the reparability, or lack thereof, of the company whose stock you own. If the company makes a lot of profits, then its shareholders (the people who own stock in the company) often stand to make a lot of money as well. Conversely, if the company loses money, then its shareholders generally expect to lose money on their investment as well.
If things get so bad with the company that it can no longer pay its obligations and files for bankruptcy, stockholders are generally last in line to get their money back, and therefore often lose their entire investment As a bondholder you receive an interest payment at specified intervals, regardless of how the company is doing (as long as the company does not go bankrupt). While the price of a company’s stock will be affected by any piece of positive or negative news from the company or the economy, as long as the company is earning enough money to pay its debt obligations, they are legally required to do so.
This means that, good or bad, as long as the company does not file for bankruptcy, you get your interest and principal payments. The downside here of course is that if the company has a great ear from a profits standpoint, you will not earn any additional interest either. Bonds vs.. Stocks – When a company goes bankrupt Another key difference between a bond and a stock is what happens when a company files for bankruptcy. As discussed above, stock holders are last in line in this situation.
With this in mind, another advantage of owning a bond over a stock is that generally bond holders are the first people in line to get whatever money is left and/or which can be generated by the sale of the company’s assets. Only after all the bond holders and other creditors are aid, will stock holders get any of their money back. More times than not, in the case of bankruptcy, there is not enough money to make the bond holders and other creditors whole, so stock holders end up with nothing. In conclusion Bonds are just like sass. Buying a bond means you are lending out your money.
Bonds are also called fixed-income securities because the cash flow from them is fixed. Stocks are equity; bonds are debt. The key reason to purchase bonds is to diversify your portfolio. The issuers of bonds are governments and corporations. A bond is characterized by its face value, coupon rate, maturity and issuer. Yield is the rate of return you get on a bond. When price goes up, yield goes down, and vice versa. When interest rates rise, the prices of bonds in the market falls, or vice versus. Bills, notes and bonds are all fixed-income securities classified by maturity.
Government bonds are the safest bonds, followed by municipal bonds, and then corporate bonds. Bonds are not risk free. It’s always possible – especially in the case of corporate bonds – for the borrower to default on the debt payments. High- risk/high-yield bonds are known as junk bonds. You can purchase most bonds through a brokerage or bank. If you are a U. S. Citizen, you can buy government bonds through Treasury Direct You can make a lot of money investing in stocks or trading in the stock market, but it is not something for the new investors. Care must be taken when it comes to stock investments.
The investor must have a solid understanding of stocks and how they trade in the market or risk losing money in a volatile type of investment (http:// www. Autocorrelations. Com/learn-stock-market). Having stock in a company means you are an owner. How many shares Of stock you have determines the extent of that ownership. As part owner, you receive dividends and have voting rights. A stock represents equity, while a bonds is a debt. Bonds are low-risk investment vehicles with guaranteed returns, while stocks involve more risk. This is why stocks have a higher rate of return compared to bonds.
When investing, the riskier the investment the bigger the chance of making more money. Investing in stocks can make you lots of money if you invest in the right company. However, you can lose all of it too. There are two main types of stocks: common and preferred. Stocks can be further classified into different classes depending on the company. The stock market is a place where people go to trade stocks. Two of the most important stock exchanges in the United States are the NYSE and Nasdaq. Purchases of stocks are commonly done through a brokerage. You can also get a dividend reinvestment plan (DRIP). Stocks are volatile.