What is a better investment – stocks or bonds?

Posted by Varun Chauhan on April 16th, 2021

Some ask you to invest in stock market and some ask you to invest in bonds. But you have to understand they tell what they have experienced in their life and it doesn't need to work for you. There is a general notion among people that investing in stocks is riskier than bonds. But that is not completely true, as your investment depends upon various factors like time, purpose, and the price at which you invest. In this article, we would discuss certain points which would help you to make a decision on your own about investing in stocks or bonds.

Volatility:

Bonds are less volatile compared to stock market and you also get a fixed interest on your bonds.  Even if the company fails to perform well, it’s under obligation to pay you first as you are its debtor. When you invest in stocks, your returns are related directly to the performance of the company.

Returns can be calculated in advance:

When you invest in bonds, the returns on the money you invest are known in advance and you can plan accordingly. In the case of stocks, it fluctuates according to market direction and thus you are unable to take a firm financial decision with the returns from stock.

Lower risk and lower returns

If you are not a gambler, then there are chances for you to earn a decent amount of return from stocks than bonds – whose returns are fixed and typically lower than stocks, but there is assurance. Sometimes, luck favours the brave when it comes to investing and the brave decision comes from good knowledge in investing activities.

Bonds lose the race in inflation

If you have invested in bonds, during the inflation period most of the time, you would be required to pay out-of-your-pocket. In the case of stocks, it is usually manageable to some extent in most cases and it won’t burn your purse.

Owner vs Debtor

When you invest in stocks, you are the owner of the company and when you invest in bonds you become the debtor.  When you choose the right company to invest in stocks, it can help your portfolio to grow multiple times, without any hitches. Being a debtor, you are part of the company for some time and you are not entitled to any rights as the shareholder does.

After analysing the pros and cons as listed above, it is up to you to decide which one is better to invest – whether stocks or bonds.