 Stock gives you part ownership in a company in spite of bonds are loans made by an investor. And it is the main difference between a stock and a bond. Stock holders gain from company benefits. But bond holders receive a fixed rate of return. This is a percentage of the bond's original offering price. The return is so called the 'coupon rate'. Bonds have a completeness date at which time the principal amount is returned. But providing less implicit reward, all this makes bonds a more trustworthy investment.
1. Risk vs. recompense
That fact that bonds typically have less risk than their stock counterparts, doesn't mean they can't flop. Because bonds can still end up giving you no money at all. The coupon rate of companies with higher credit worthiness will be lower than companies with lower credit ratings. They are more likely to be safe investments. Such firms as Standard and Poor and Moody's Investor Service provide credit ratings that range from a high AAA to a low D.
2. Government bonds
US government bonds are the safest type of bonds. Blue chip corporations are considered also to be very safe bond investments. Smaller corporations have a greater risk of neglecting on their bonds. Bond-holders are preferential creditors and will get compensated before stock holders in the event that the business goes bankrupt.
3. Selling your bond
You can buy and sell bonds on the open market. According to the level of interest rates in the general economy you can see the fluctuating of their value. Let's take one example where you will see it. In case you hold a $1000 bond that pays 5% per year in interest you can sell the bond at higher than face value as long as interest rates are below 5%. But take into your consideration that your bond can still be sold if they rise above 5%, but usually at less than face value. The reason of this is that fact that investors are able to get a higher interest rate than what your bond pays. So in order to compensate the difference your bond has to be sold at a lower cost.
4. OTC Markets
The extensive majority of bonds can be traded over the counter through banks. The same we may say about some corporative bonds that are also listed on stock exchanges and may be bought through stock brokers. Keep in mind that new issues of bonds are usually sold in $5000 increase while bonds bought and sold after the initial issues are quoted in increase of $100. A bond that is listed at 96 is selling for $96 per $100 face value. For this reason, unless you are ready to make a big investment, you should probably stick to stocks.
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