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Wednesday, May 25, 2022

Which best describes the difference between stocks and bonds?

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Stocks and Bonds

When it is about investing, every investor parks his fund in search of different investments that offer good returns like stocks, bonds, debentures, futures, options, swaps, etc. When investing in shares, you have an ownership interest in the company and also have delinquents claimed in the assets and profits of the company.

On the other hand, investing in bonds is considered to be a lot safer than stocks because it takes priority in repaying. It is a debt instrument, which signifies the money given by the company to the investor, and is for a specific period of time. To decide which financial asset is better suited to meet your financial needs and goals, you need to explore the difference between stocks and bonds.

The main difference between stocks and bonds

  1. Financial assets owned by the company issued are known as stocks. Bonds are debt instruments issued by companies to raise capital with the promise of returning the money after some time with interest.
  2. Stocks are issued by companies, while bonds are issued by government institutions, companies, financial institutions, etc.
  3. Stocks are equity instruments, but bonds are debt instruments.
  4. Return on shares is known as a dividend whereas interest is the return on debt. The return on the bond is guaranteed. Unlike stocks that have no guarantee of return.
  5. The risk in stocks is higher than in bonds.
  6. Stock owners are stockholders. Conversely, holders of bonds are known as bondholders.
  7. Centralized trading takes place in the stock market. Unlike bonds, where trading is done over the counter.
  8. The stockholder is considered the owner of the firm. On the other end, bondholders are lenders to the firm.
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