Investment in different instruments is investor’s choice based on the age, risk tolerance, and investment time.
- Definition of a stock and a bond
A stock is an ownership stake taken up in publicly traded corporations thus offering the opportunity to investors to grow along with the company itself. However, they also carry the risk of declining in value. Thus, the profitability of the share depends upon the stock market fluctuations that are tied to the company’s performance.
On the contrary, bonds are fixed income instruments representing a loan to the borrowers from investors. These are guaranteed by the fact that the payout is guaranteed by the borrower. There is a concrete maturity date on which the principal amount is paid to the investors along with the agreed interest amount.
- Pros Of Investing In stocks Instead of Bonds
Stocks have certain advantages over bonds making them an attractive investment option for most investors. Let us first take a look at some of the advantages of investing in the stock market rather than bonds.
- Stocks help in taking advantage of economic growth. This is because the earnings of the company improve as the economy grows. This in turn leads to a higher share price and better dividends.
- In case of an emergency, stocks can be converted into cash at any time by selling them in the stock market.
- Buying and selling of shares can be done by you personally once you open a Demat account with a valid intermediary.
- In addition to the stock appreciation, there are dividends too that help you in earning a better return on your investment.
- The returns offered by the stocks are very high when compared to the returns offered by the bonds.
- Cons of Investing in Stock market
Even though stocks look attractive due to the high returns offered by them, they are also considered to be one of the riskiest investment options due to the high market volatility. Following are some disadvantages of investing in stocks rather than the safe haven of bonds:
- Investors get exposed to market volatility. Every day there are new highs and new lows to some stock or the other. Thus, the value of an investment may be high one day but can fall drastically on another.
- In case liquid funds are needed, you may have to sell your stocks at a loss that may have otherwise been avoided in a bond.
- There are no guaranteed returns in the stock market.
- Stocks are considered to be one of the riskiest investments as even the slightest negative news regarding a company can make it crash in the market.
The battle between stocks and bonds will always persist due to their inverse relationship. When investing, it is best advisable to use due diligence in choosing the right investment tool for their funds. In order to better understand the best option suitable for your investment goals, contact our financial experts today.