In many instances, many investors get confused which between shares and bonds is a better investment option. For you to make reasonable money, you have to inject cash to a profitable venture, and since shares and bonds are two securities that dominate the investment ecosystem, it’s advisable to seek knowledge to determine which fits your goals.
There are facts you need to know before you decide to invest in bonds and shares. Before we analyze the best option, here are features of the two (bonds and shares)
- Maturity
Bonds take long to mature; they can take up to 15 years. When you inject your money into bonds, you are expected to be patient for at least three years, based on the type of bond you bought, until it matures for you to earn interest.
When you invest in shares, you expect to earn money any time. Shares do not have fixed maturity date.
- Risk
It’s riskier to invest in shares than bonds. Investors who are risk takers never fear to buy shares yet they know this is a risk venture. But when it comes to returns, they expect to earn based on the profitability of a company.
Risk averse individuals are advised to invest in bonds. This is because bonds have a fixed interest rate on the principal amount invested.
- Ownership
When you invest in bonds, you don’t become part of the ownership of a company but shareholders have a stake in a company. This makes shares more attractive because one has a say in the management of a company.
When you buy a bond, you are simply loaning a government or municipal council your money, in return you earn fixed interest.
- Profit
When you invest in bonds, you are sure of the amount you earn out of the invested amount. This is known by calculating the coupon interest rate realized on the principal amount.
Shares have uncertain returns. As you invest your money on shares, you pray for the company you invest in to make profits. If there is boom, you will definitely make a lot of money through dividends.
Now, if you have money you want to invest in stock market, the best investment option is bonds. If you want to take risk and have quick returns, shares are the best securities to invest your money in.
If you choose to invest in shares, you have to monitor profitability of a company. This must be done based on 5-year profit. You can request for financial, which you will scrutinize in terms of assets, profits and losses. If you realize that the company has billions of loans and its profit margin is low, don’t buy shares of that company.
If you want to invest in bonds, choose government bonds, simply because they have high coupon interest rates.
