We previously published a post as a guide on how to buy stocks for beginners. This time around, we’ll discuss the differences between bonds and stocks and which one’s better for your financial needs.
So whether it’s for retirement planning or something else, we hope this guide helps you choose the right kind of investment for your future.
What is it and who issues it?
While both stocks and bonds are considered financial instruments, the issuers and the way they generate profit are vastly different from each other.
Corporations and private companies issue stocks, while governments or financial institutions and companies issue bonds. Another big difference is that stocks can appreciate in value and be sold eventually, while bonds stay within a fixed interest over time.
Stocks are all about partially owning a company, while bonds are considered your loan to the company or government. Stockholders are basically “owners” while bondholders are “lenders”.
What are the risks and returns involved?
An experienced financial advisor in Singapore can give you the best tips and advice on bonds and stocks. Between the two, however, bonds are generally considered less risky than stocks.
Stocks are considered more high risk because a lot depends on the issuer’s performance. But if the company is successful, the value of your shares will reflect it, which will be shown in trading apps.
Because bonds don’t require equity, you can expect substantial interest on your loan after a set period. However, this doesn’t mean that investing in bonds is completely risk-free because any company or institution can file for bankruptcy at any time.
You can also get Robo advisors to help you with either investment choice.
What are their benefits?
Whether it’s equity or debt you choose as a financial instrument, you might want to look at additional benefits that come with stocks and bonds.
For starters, stockholders can vote for the future of a company they’ve invested in. Bondholders can’t, but they can control how they’re going to be paid or have their investments liquidated.
Both, however, hold benefits for seasoned stockholders and bondholders if you know how to grow your money right.
In our guide to IG markets, we mentioned how it isn’t the best option for those just starting out on trading. The same can be said about our guide to IBKR accounts in Singapore and how beginners might be intimidated to use it.
What kind of market is involved?
Investing in stocks means you’ll be playing the stock market, while bonds are purchased directly from the issuing company or institution. Stocks have a more centralised market in comparison.
These markets influence the forms of return of what you invested. Stocks get dividends which are not always guaranteed, while bonds earn interest via fixed payments.
You can get help via Robo advisors like Autowealth or StashAway for stocks if you don’t want to get into the nitty-gritty of the stock market. And if you want more guidance on how to use bonds, check out our guide on when to use money in your CPF accounts.