Shares vs Bonds: The Best Investment Instrument for You

  • December 7, 2018

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Shares vs Bonds: The Best Investment Instrument for You

Looking for the best investment for you and your family? In today's contributed post, learn how to make the right choices with your money.

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Whether you want to supplement your income or you want to be able to more easily save some money for retirement, there are a lot of ways to invest your cash today, and some methods involve more risk than others. Therefore, it is wise to weigh all of your options and determine which one(s) you feel most comfortable with.

Two of the most popular investment instruments are shares and bonds. Continue reading to learn about the differences between these investment options, as well as the pros and cons that are associated with each, so you can make the right decision that’s best for your needs.

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What You Should Know About Shares

Shares are also known as stocks, and they are basically a means by which you can own a small part of a large business. Put simply, when companies decide that they are ready to sell stock, they will sell off a particular number of shares of ownership.

Therefore, investors who purchase those shares will, technically, own a portion of the brand they have invested in. After purchasing shares, investors can keep those shares as long as they want, as well as sell them and cash out whenever they choose.

And the companies that sell shares could also pay investors via dividend checks, which are often paid on a quarterly basis.

Knowing the pros and cons

Before investing in stocks, it’s important to analyze the pros and cons associated with this type of investment. The good news is that owning shares of various companies can help you make your money grow.

Growth can happen surprisingly quickly if you buy shares at the best possible moment in time, i.e. when a company is expanding. However, there is a high level of risk involved, and a company that begins to falter will have stocks that become less valuable, causing investors to lose money in the process.

Dealing with the volatility

Basically, the stock market is highly unpredictable and volatile, and you don’t really know what will happen from one day to the next.

You definitely need to do your research before buying stocks, and you need to stay on top of your shares so that you can determine when it’s the best time to sell your shares and cut your losses. If you play the game right.

However, you do have the potential to earn a lot of money in a short period of time.

But the volatility of the stock market is also one of the reasons why many find it is so attractive in the first place. Not only can you make money when the stock market is up, but you can make money when the stock market is down as well. The way you can do this is through a principle known as shorting.

When you’re shorting a stock, you’re actually placing a bet against the stock by borrowing a few shares with a promise of repaying them later. These stocks are usually borrowed from the broker’s account and sold at the current price. The goal is to rebuy the same amount of stocks later at a lower price and return the shares back. This allows you to cash in the difference minus commissions.

There are also plenty of new financial instruments like ETFs that allow you to benefit from the same type of advantages mutual funds offer, without having to deal with the rigidity of mutual fund markets. ETFs allow you to monitor whole industry sectors or certain indices and bet for or against them. These ETFs are then traded on the open market just like regular stocks are. This type of flexibility and versatility is something bonds just can’t offer.

What You Should Know About Bonds

You can purchase bonds from a government, city, or company. When those entities want to raise funds for any reason, and when they want to get help from investors rather than loans, they will issue bonds, which are considered fixed-income investments. The bonds offer a fixed interest rate over a fixed period of time, after which the money will have to be paid back to the investor, with interest tacked on.

When compared to shares, bonds are low risk, so this is definitely a better investment choice for those who aren’t willing to take on a lost of risk with their money. You know how much money you’re investing, how long the money will be held, and when you will get the money back, as well as how much you will make in interest when you get the money back. It is a lot like putting your money in a bank account that earns interest, or a certificate of deposit that holds your money for a fixed period of time with interest. And, because the interest rate is fixed, it won’t be susceptible to fluctuations in the rate that would otherwise cause it to decrease over time.

Despite all of the security that comes with this type of investment, though, it does come with a cost, which is the fact that you typically can’t make as much money in the same amount of time as you would with the stock market.

Stumped? Work with a Financial Expert

If, after checking out all of the information on shares and bonds, you still aren’t sure about which investment option is right for you, consider talking with a financial expert.

He or she can go over your financial information as it stands currently, as well as discuss your hopes for the future and what your investment goals ultimately are.

Then, this professional will also be able to advise you on what investment type is truly the right one for you to pursue, based on your needs and the amount of risk that you are willing to take on to watch your money grow.

Conclusion: Understanding The Best Investment For You

With a better understanding of shares and bonds, you can decide if either or both of these investment opportunities will be appropriate for your needs.

Here’s to making your money work for you so that you can have a more secure financial present and future!

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