Should you invest in Crypto Currencies, Stocks, or Bonds? With the recent cryptocurrency craze, many people are wondering if they should buy and sell these digital currencies or invest in stocks. While stocks offer more stability and less volatility, cryptocurrencies offer an opportunity to make a lot of money fast.
Read more about crypto investments here – Bitcoin Crypto: What Investors Should Consider
In this post, let’s look at a more stable and less volatile investment – Stocks and Bonds. Not only newbies to the stock market are concerned with the question of the ratio of shares and bonds in the personal portfolio, but of course also the professionals. However, this matter can only be answered individually.
- A mix of bonds and shares minimizes the risk
- The low-interest phase makes bonds unattractive
- Investors with an affinity for risk can invest 100 percent in shares
Stocks, but also bonds (especially those listed on top bonds 2022), offer investors the opportunity to invest directly in a single company or issuer. However, there are very different opportunities and risks for the investor, which must be considered before making an investment.
The basic difference between bonds…
A bond, regardless of whether it is a corporate or government bond, represents a debenture with which the respective issuer collects debt capital from its investors. For this capital, the buyer or the creditor receives a fixed interest rate, which is usually paid out annually. In addition to this annual interest rate, the lender receives the full amount invested at the end of the bond’s term, provided that the respective state or company is not insolvent.
With the help of a bond, an issuer procures debt capital, which, in contrast to the purchase of shares, makes the investor merely a creditor and not just a partial owner.
… and stocks
In contrast, the buyer of a share becomes a co-owner of the respective group. Accordingly, the shareholder owns a fraction of the entire company. In contrast to the placement of a bond, a group issues fresh equity and no borrowed capital by issuing shares.
While the return on a bond comes from the annual interest payments, the return on shares is made up of dividends and price increases. Although price gains can also be achieved with bonds, the repayment of a bond always refers to the original nominal value. In contrast to bonds, shares do not have a fixed term and can therefore remain in the portfolio for life.
The key similarities between bonds and stocks
Despite the fact that investors inject debt into a company by buying a bond and equity by buying a stock, both asset classes have a lot in common. Both bonds and shares can be traded on the stock exchange at any time, which means that their price is always determined by supply and demand. Furthermore, bonds and stocks can be kept together in a securities account. This means that both asset classes can also be acquired and traded together in a mixed fund or ETF.
Another similarity between bonds and stocks is the prospect of regular income. In this way, both asset classes can continuously generate profits, either in the form of dividends or in the form of interest payments.