Kojack J. Davis
Professor Q. Glapion
May 19, 2014
Bonds and Stocks
Differences and similarities
People have many choices when it comes to the money they earned. Some people chose to go on vacations, some people chose to buy high tech electronics and others chose to invest their money. When it comes to investments, most people chose to invest in stocks and other chose to invest in bonds. This compare and contrast paper outline the significant differences and similarities between bonds and stocks and how such choice can affect people's future investment.
Bonds and Stocks have few similarities as both consider being financial security instruments that offer a return for investors and both can help organizations to raise capital in order to expand, develop or finance operations. In addition, stocks and bonds are similar in liquidity. Liquidity is the ability to turn an asset into cash, and, therefore, they are both tradable assets that can be bought and sold in the trading floors.
Stocks in the financial industry are an "Equity" kind of instrument and the "Stock holder" owns a part of the issuing company. Thus, in the event of business liquidation, the owners are the last to get paid and, therefore, Stocks have a greater risk over bonds. Even tough market trends history shows that stocks have better 10 years performance over bonds, yet, bonds still offer high diversification and it can help to smooth out stocks volatility (Kenny, 2014). Even though many people aware with the risk associated with stocks investments. Many people rather invest in stocks over bonds. According to Jim Cramer "Bonds, on the other hand, will continue to become increasingly unattractive, as stocks with big yields and bigger earnings will garner all the headlines" (Rutt 2013).
Bonds Stocks in the financial industry are "Debt" kind of instrument and the bondholder is treated as a creditor to the issuing company. Therefore, bondholders get paid though coupons...