Debt security (bonds) can be a better investment than stocks

Investors have two major options when they decide to put their money in financial securities. These options are stocks and bonds. Investing in stocks involves buying the shares of different companies. This means, you would have partial ownership of these companies and would be affected by the profits as well as gains made by them. Bonds, on the hand, are debt securities issued by governments and corporate bodies. The issuer of the bond is bound to pay the principal amount as well as interest to the holder of the bond after a certain period of time. Many people prefer bonds over stocks when it comes to investing their money. Are they right? Let's discuss.

A big reason for investing in bonds is that they will earn you regular as well as steady money. Almost all bonds pay you a fixed interest rate till they mature. So if you need a specific amount of money at regular intervals then you might purchase a certain number of bonds. This is where bonds have an edge over stocks. The money you earn from stocks (commonly termed as stock dividends) are neither fixed nor guaranteed. They are a matter of the concerned company's whims.

You have the right to get back the principal amount after the maturity of the bond. This is because a bond is, as previously stated, a debt security. The maturity period of a bond is also very flexible. It can be anywhere from a couple of months to thirty years. But stocks can be an uncertain proposition in the sense that if a company fares badly and files bankruptcy then the value of the stock will come down abruptly. Consequently, the stock holder will be ruined. But even if a company goes bankrupt, the bondholders can very well, claim the assets of the company since the company will be perceived as a debtor.

With bonds, you can plan according to interest rates. If the interest rates are soaring then you might buy short term bonds. After they mature, you can invest them again at higher interest rate. In case the interest rates are going down, you can opt for long term bonds. You cannot devise an investment policy based on dynamic interest rates when it comes to stocks.

There is a very profitable kind of bond called "junk bond" or “high yield” bond. These kinds of bonds have high interest rates. Also, if the company fares well consistently then the market price of the bonds will increase. There is no such equivalent of junk bonds or concept of “interest from company” in stocks.

From the above discussion, it is clear that investing in bonds can be a better idea than investing in stocks. However, you should consider your financial situation and inclinations before making any decision. Best of luck!

Author bio :

This article has been written by Amy Lewis. She is associated with Oak View Law Group, a trustworthy debt settlement firm.