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It is abundantly clear that the economy that is of today is fragileand it faces numerous challenges such as inflation, geopoliticalcrisis, declining economic growth and financial crisis. As aconsequence, it is paramount for every investor to invest in aninvestment that will guarantee him an income. Investment in stocks orbond has been one of the best forms of investments due to the returns(Bouchentouf 99). However, this has not the case for all investors inthe recent past. The last ten to fifteen years have been a difficulttime for investors. The decline in economic growth and the economicmeltdown crashed the stocks and many people were counting loses.Investment in stocks and bonds is indeed a good idea at this time.
Before considering investing in bonds or stocks, it is essential tonote the difference between the two. Stocks are normally shares ofstock which are normally issued by corporations. Stocks earninvestors dividends from the profits of the corporation. It ishowever worth stating that the dividends are not guaranteed and theyare issued at the sole discretion of the management’s decision inthe corporation (Scott 142). Bonds on the other hand can be issuedeither by the government or a corporation. Bonds earn a fixedinterest after every six months. Bonds are form of a debt to acorporation or the government where the principle amount must be paidat a set date.
Research has indicated that invested in bonds is secure even intoday’s economy. The risk involved in the investment of bonds isextremely low as compared to the risk involved in the investment ofstock. Bonds are a form of a loan to a corporation or the governmentin which there is an agreement that the principle amount must be paidback at a particular date. It is therefore clear that it is extremelydifficult for an investor who has bought bonds to lose all his money.At least even when there is an economic crisis, the investor isguaranteed of his initial investment amount (Thomas 93). The interestwhich is paid every six months is also attractive and the corporationor the government has an obligation of paying the interest as agreed.This is a clear indication of how bonds are a safe form of investmentwhich is perfect for the current economy. It is clear that the bondwill not fluctuate with the numerous fluctuations that have beenwitnessed in the economy.
One thing that is vital to note is that the bonds may take a longtime before they are repaid by the corporation or by the government.During such a period, the currency may depreciate due to variouseconomic factors and therefore the investor may not get the totalamount he or she invested. However, the good news is that the wait isnormally considered as being worth. This is because the bonds earninterest every six months which the investor can use for otherinvestments (Thomas 75). It is evident that the economy may fluctuatebut it gets to a point where it stabilizes. It is therefore clearthat investors who may be willing to wait will find it easy to makemoney through bonds. Additionally, in today’s fragile economy,there are numerous corporations that might be interested in bonds andtherefore there are numerous opportunities to invest in bonds.
Stocks are also a perfect form of investment in this type ofeconomy. Although stocks are largely affected by the forces of theeconomy, it is evident from research as demonstrated below that thepatient investors are able to rip immense benefits from their stocks.It is possible to earn dividends from the stocks every year from thecorporations’ profits. It is hard for many corporations to makelosses year in year out and they will definitely share the dividendswith the stock holders. Many people who invest in stocks are patientand can wait for the stocks to appreciate for many years. Researchhas indicated that stocks takes up to three years to recover from theeffects of an economic meltdown or economic depression. Drasticdepreciation of stock prices is largely referred to as a stock crash.This is a period when prices of stocks are at the lowest andinvestors are just counting losses (Thomas 138). Research hasindicated that the stocks take approximately three years to recoverfrom the economic meltdown. This is a clear indication that theinvestors will not go at loss if they become patient. Being a youngperson, it is a perfect form of investment since the stock can beleft to take sufficient time and to gain value. It is useful tomention that stocks pose a risk of failure to receive any dividends.The decision of whether a corporation will make dividends to thestockholders or not is the sole discretion of the management.
In the investment of bonds and stocks, it is clear that the investorcan predict economic meltdowns although not perfectly. This is aclear indication that in the investment of bonds and stocks, it iseasy to prepare in advance for future shortcomings (Scott 125). Eventhough the investor may not predict correctly, the fact is marketskeep on fluctuating and the investor has the responsibility to alwaysbe prepared. As a result, investment in bonds and shares can beextremely profitable when someone is always prepared for depressions.It has largely been said that the investing debt is safer and lessrisky than investing in equity. This is the principle that the peoplewho invest in bonds apply (Scott 114). Corporations are more likelyto pay their debtors before paying the shareholders. This ensuresthat the bond owners are paid timely. Additionally, research hasindicated that when a corporation files for bankruptcy, the debtorsare paid some of their money while the shareholders lose everything.These just but some of the advantages of investing bonds or stocks.Each one of the two has its own advantages and its own disadvantages.
Another reason that one would consider investing in bonds is becauseof the high interest rate that the bonds offer. It is clear thatthere is no single bank in the US that has such rates as the onesoffered by the bonds. However, it is worth noting that the money putinto the purchase of bonds should be money that is not needed in thenear future. Putting the money in a bank will earn the owner nothing(Scott 85). Therefore, besides eliminating the risk, investment inbonds is also a source of income in terms of interest. Money such asthe funds for college can be invested in bonds. This is money thatthe parent may not need in the near future and it would only beprudent to invest it in bonds.
Stocks are a form of accessing one’s cash easily and at any time.The greatest advantage with stocks is that you can sell them wheneverthe prices are high and buy later when the prices go down. Researchhas indicated that the bonds may seem attractive at the first fewmonths, but this changes with time where the stocks surpass thebond’s value (Scott 78). This is a clear indication that investmentin stocks will call for patience. When an economy is recovering, itis clear that the value of the stocks will rise. The prices will gohigh and the corporation may even opt to reward the shareholders.Bonds are marketable and can be sold to another investor before theyare mature (Scott 105). Since bonds are marketable, it is easy tofind a buyer and ne can quickly sell them without much hustle.
It is clear that the investment in bonds and stocks is a perfectform of investment especially in this type of economy. Bonds providesecurity to the investor and the investor is assured of his initialinvestment. Bonds also offer high interest rates as compared to banksacross the United States. Additionally, bonds can be sold at any timedue to the demand that exists for bonds in the market (Bouchentouf45). Stocks on the other hand might be risky to invest in, but for apatient and young investors, stocks have proven to be better thanbonds in the long run. They can gain immensely in terms of value overtime and provide sufficient income to the investor. It is thereforeclear that the investment in bonds and stocks is timely and perfectfor the current type of economy.
Bouchentouf, Amine. High-powered Investing All-in-One forDummies. Hoboken, NJ: Wiley Pub, 2008. Print.
Scott, David L. The Guide to Investing in Bonds: How to BuildYour Wealth by Mastering the Basic Strategies. OldSaybrook, CT: Globe Pequot Press, 2010. Print.
Thomas P. A Modern Approach to Graham and Dodd Investing.Hoboken, N.J: John Wiley, 2014. Print.