Stocks And Bonds

The question that haunts most investors is what they should invest in stocks or bonds. Stocks are having shares in an organization and large organizations pay out dividends which are the profits that they earn to their shareholders. These dividends can either be in the form of cash or additional shares in the company known as bonus shares. In shares there are two types of shares one are those which are termed as ‘blue chip’ shares. These are shares of well established businesses and do not fluctuate too much in price. The other are common stocks which tend to move up and down based on the company’s performance and the stock exchanges in which they are traded. Common stocks may rise and fall rapidly as they are dependent on their performance. One has witnessed how the share prices of large airlines tumbled when oil prices rose and the cost of traveling increased thus reducing the number of passengers who were flying. Bonds on the other hand are promissory notes mostly issued by the government, like in the USA treasury bonds also known as T-bonds are the most common. A bond is a promise to pay back with a fixed amount of profit on a predetermined date. This is called its maturity date. By purchasing bonds one is not participating in the growth or falls of the organization and has no share in it. Bonds are also issued by other organizations like public utility companies and large organizations.

The New York stock exchange is one of the oldest and well known stock exchanges of the world and the leading stock exchange in the United States. Stock quotes are published daily in the financial section of newspapers which show the price at which the stock opened and its closing price and its variation. People use these quotes to see how their investments are faring and based on this news may decide to buy or sell stocks. Now with the internet stock prices are available online and there are also TV channels that are devoted to bringing viewers the latest stock prices from the different stock exchanges. People who do not want to play the stock market and want to have some money when they retire prefer investing in US savings bonds as they are guaranteed by the US government. The stock markets are quite volatile and most stock exchanges have witnessed a stock market crash. A stock market crash is when there is a rush of shares that are up for sale and there are no buyers for them. Many people have been left holding on to worthless pieces of paper which once were shares but the company went out of business. Another type of stock is penny stocks which are shares which have a very small value and are not traded on the stock exchanges. Typically in USA shares worth less then $5 and in UK shares worth less then a pound are known as penny stocks. Many new investors who try to play safe will be drawn into investing in them because of their low price. But if the company packs up the shares become worthless. They are high risk shares and only if a company shows a real growth potential should one invest in them.

Some investors use stock beta to calculate how a particular stock is doing. This is a statistical calculation that is performed and is commonly termed as a regression analysis. This examines the variation in a stock against the stock index. Like the performance shares of a pharmaceutical company are compared with the pharmaceutical index and this is used to determine if the growth is upwards, downwards or linear.

Stocks vs bonds is the decision that a lot of people get stuck on taking and it is best that people should go with a mixed lot of bonds and shares and that is why more and more people have taken to investing in mutual funds.