The class on stocks left me hanging, especially with all this talk in the news about bonds and the debt crisis. What are these again?
Stocks
The stock market is the trading of capital. The buying of a stock gives out ownership of the company; earnings reflect their profitability. Returns are unknown since much of the stock market is based on speculation, but they are always proportional to risk.
Bonds
On the other hand, bonds can be regarded as loans to a corporation or government, in which the institution does not want to give up any control or profit. Rather, an interest rate and maturity time is set. Having fixed returns makes bonds safer than stocks, in which it is possible for investments to become completely worthless.
Which would you choose to invest (risk) in?
Considering the time value of money, people are pushed to invest because money left stagnant will surely depreciate. Even though earnings would be minimized by high inflation rates, I would buy bonds to ensure that the worth of my savings stays atop. Of course, confidence in a company’s potential would motivate me to buy their stocks for a chance to earn big.
All things apart, invest intelligibly. Like gambling, stay within your limit. It’s always better to be on the safe side.
References:
–Stocks and Bonds: How to choose the right option