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What are stocks and bonds, and which one is better? That is a question that new investors often ask, well let us look into them. Stocks are portions of a company. When you buy a stock you are buying a small percentage of the underlying company. This means that if the company grows your stock is likely to grow, if the company declares bankruptcy, then your shares become worthless. So you are taking a little bit of a chance, by buying and holding a stock, but the payoff can also be great. In addition to profiting from the appreciation some stocks also pay a dividend (or percentage of their earnings) to their stock holders. Bonds on the other hand are more like loans that you profit from. Think about it this way when you need money you go to the bank and get a loan. When a company needs money it issues a bond and allows everyone to buy a piece of their debt. In other words when you buy a bond you are actually loaning a certain company money. You get a monthly income from the interest payments and when the final due date comes around the company pays you the amount the bond is worth at the time. So, which investment is better? Well it depends; buying a bond is safer because you still make money even if the company shrinks. If the company is going bankrupt then you are the first ones in line to get paid back. But history has shown that the price stocks goes up faster than the price of bonds in the long term. So if you are looking to take a little bit more of a risk for higher returns then stocks are for you. If you want to play it safer for a smaller return then bonds might be more your style.

Article Source: http://EzineArticles.com/?expert=Shaun_Rosenberg


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What Are Stocks and Bonds