Bonds and common shares constitute two choices most commonly available for investors. Government bonds effectively constitute a loan made to the government, one that will be paid in full with the percentages promised (around 2-3% per year) (MissBeHelpful, 2017). It is a safe kind of investment, as countries (unlike companies) are much less likely to become bankrupt or disappear from the face of the Earth. Common shares, or stocks, are securities that represent the ownership of a corporation (MissBeHelpful, 2017). Their prices depend on how well the company is performing in the market (MissBeHelpful, 2017). Thus, such an investment is by definition riskier and more volatile than buying bonds (Konecny, 2018). At the same time, the propensity for rewards is much greater with common shares – investing into a company with high growth rates can promise great returns much quicker when compared to bonds.
As an investor, I would much more likely invest into common shares rather than bonds. While bonds are safer, the percentages offered by them are often low, meaning that it would require much larger sums to be put into bonds in order for the profits to have any substance (Konecny, 2018). At the same time, the long-term nature of bonds makes the deposit more susceptible to inflation (Konecny, 2018). Common shares, while riskier, allows a much lower barrier of entry, and a much greater likelihood of obtaining rewards (Konecny, 2018). It is the reason why bonds are largely invested into by large institutions, such as insurance companies and pension funds, among others (Konecny, 2018). Stocks, on the other hand, present many opportunities for large and small investors, making them a better option.
References
Konecny, L. (2018). Stocks and exchange: The only Book you need. New York, NY: Books on Demand.
MissBeHelpful. (2017). Stocks vs bonds: What’s the difference. Web.