Investing money can be tedious and complicated for investors planning to earn money at a faster pace. In general terms, stocks provide long-term growth potential, while bonds provide a steady income stream. Stocks are certificate of ownership of a fraction of the capital of the company that issued it. The stocks are listed on a stock exchange, and are also called share or equity. On the other hand, bonds are debts issued by companies or governments who guarantee payment of the original investment plus interest by a specific time period. The stock generally reflects the earning experience of the firm, and whether it shows profit or loss. While investing in the stocks of any company, there is no schedule of repayment and no stated rate of return. There are variations of risk and reward while one invests in stocks. The companies having long histories of producing earnings and paying dividends issue Blue Chip stocks. A blue chip company is well established within its respective industry. Small capitalization, or "small cap," stocks represent shares of companies that are less established. This explains the tremendous growth and also translates into higher returns for the investors. The valuation of the shares can also take a downturn, thus hurting the investors severely. Bondholders receive a fixed return on their investment. This return, stated as an interest rate on the bond, is called the "coupon rate" and is a percentage of the bond's original offering price. When the bond expires and the principal (original investment) is returned, the bond is said to have matured. The prices of the bond also fluctuate as per the market value and, if sold prior to maturity, may produce a gain or a loss in principal value. In any investment made in the market, an individual has to analyze the risk he is undertaking. The risk can be only minimized by being aware of market trends and keeping a close eye on the financial statements released by the corporation. |
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