Have you decided to invest a part of your savings? To do this, you have different forms of investment available but, to consciously choose the ones that best suit your savings objectives and your propensity for risk, it is important to know their characteristics, riskiness / return and duration. So, let’s start with the basics and clarify the difference between stocks and bonds, not stopping at the cliché that stocks are more profitable and bonds are less risky.
What are stocks and bonds then? Instead of resorting to a bank loan, a company can finance itself in two ways : by selling shares of its capital or by borrowing capital on the financial market: that is, by issuing, respectively, shares or bonds.
Shares are small shares, of equal value, in the share capital of a company: if you buy a share, you become a partner, that is, you own a “piece” of the company and, thus, you participate in its profits and losses like www.cinemacasino.com. The value of the shares depends, in fact, on the performance of its business: you earn if it goes well, that is, if it generates profits and pays dividends to shareholders (shares of profits) and, therefore, if the shares increase in value over time, that is, if there is a positive difference between the price at which you sell the shares and the price at which you bought them.
The shares can be listed, if they are sold / bought on the stock exchange, or unlisted, if their exchange takes place directly with the company that issues them (or with its shareholders). If you want to buy or sell listed shares, contact authorized intermediaries, i.e. banks and securities firms (SIMs), who place buy and sell orders on your behalf.
Instead, what are bonds? And how do they work? Bonds are credit instruments that you buy to make a loan to the issuing company which, in exchange, undertakes to repay it at the agreed deadline and to pay interest at a fixed or variable rate. So, here is a first difference between shares and bonds: if you buy the bonds of a company you do not become a partner or shareholder, but you become a creditor.
Depending on when the loan expires, the bonds can be short, medium or long term. As a creditor, upon maturity, you are entitled to a lump sum refund of the invested sum while the interest (coupons) is paid to you periodically. In the case of bonds, therefore, the return you get is given by the interest that accrues over time and by the difference between the purchase price and the redemption price of the securities. When you do not have any loan, you can enjoy your time in best online pokies real money.
Another difference between stocks and bonds is that, while as a shareholder you “earn” only if the business is performing well and there is a dividend distribution, instead, as a bondholder you must receive interest and invested capital , otherwise the company is insolvent, a prerequisite for the court to declare bankruptcy.
In addition to private companies, a state can also issue bonds: these are government bonds, such as BOTs (ordinary treasury bills), CCTs (treasury credit certificates) and other Italian government bonds.
So, better stocks or bonds?
If in general , it can be said that shares yield more than bonds , it is because, in principle, an investment in shares is riskier and, therefore, is “rewarded” with a higher yield. This does not mean that the bonds are risk-free: as we have mentioned, there is credit risk , in the hypothesis that the company or the issuing state is no longer able, even for a part, to repay the loan received from the investors or to pay them the interest due. The risk is also linked to the type of bond: in the event of the issuer’s financial difficulties, ordinary (or senior) bonds guarantee you a priority in repaying the loan over the subordinated bonds .
From the differences between stocks and bonds, just listed, comes the macro difference between equity funds and bond funds . They are both open-ended investment funds but, while the former invest at least 70% of their assets in equities, the latter invest most of their assets in bonds. In addition, with the exception of mixed bond funds, there is a prohibition on investing in equities for bond funds.
