Nowadays, there are many different ways to effectively invest your capital. You can open a deposit at a bank, purchase real estate, engage in Forex currency trading, or purchase gold bullion. In this article we want to draw your attention to the stock market. It draws a huge number of various securities, each of which has its own specifics and characteristics. Let's try to tell in more detail what a stock is, what a bond is, since it is these papers that most often cause interest for potential investors.
What is a stock?
This paper is perhaps the most common trading tool on any stock exchange. Shares are issued (issued) upon the foundation of various joint stock companies or as a result of the reorganization of an enterprise into a company of this type. The initial value of one share is determined through the ratio of the size of the authorized capital to the number of such securities. They are implemented among shareholders, and, thus, each of them contributes to the development of this company. The person who owns the shares is entitled to receive income as a result of the profitable work of the enterprise according to the results of the reporting year, if the majority of shareholders vote at the obligatory annual meeting. It happens that the company suffers losses or it is decided to invest all the profits on the re-equipment or development of the company.
What is a bond?
After we figured out what stocks are, let's move on to the essence of bonds. Like stocks, these securities are also issued in order to attract
additional capital. They are put into circulation for a predetermined period during which the bondholder receives a clearly defined income in the form of interest on the initial cost. When the circulation period expires, the bonds are returned to the issuer and receive in return a discount - the amount of funds that were originally paid upon purchase.
Stocks and bonds. Similarities and differences
The similarities of these securities are that both of them serve as a source of attracting the necessary financial resources. Purchased as a result of the initial issue, they can subsequently be sold at a better price to other investors. With the help of stocks and bonds, you can receive income from ownership of these securities, as well as in the form of the difference between the purchase and sale prices to other investors.
The differences are in the ability to manage the issuing company. What is a stock from this point of view? This is a paper that says that its owner is a co-owner of the company and has the right to take part in all important management decisions. At the same time, a bond is, in fact, a debt receipt certifying that a person has lent funds to the state or enterprise and after a certain period of time will receive a fixed fee for this. As a rule, the size of dividends on shares exceeds the amount of interest on bonds, but at the same time investing in shares is more risky, as the market conditions are constantly changing, and it happens that the recent favorite turns into an outsider sharply.
Thus, the investor can choose what is best for him: a reasonable risk with a higher income, or stability with a small, but guaranteed profit. Knowing what a stock is and how it differs from bonds, you can distribute your capital in the optimal proportion between various financial instruments. Such diversification will allow you to find the very "middle ground" that will bring stable prosperity in the future.