Stocks Versus Corporate Bonds

By Author: Lecia Selbo
Total Articles: 49
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If you want to invest in the stock market you have two options. You can either invest in stocks or bonds. Ideally, you would invest in both as it is a good policy to keep as varied an investment portfolio as possible.

Companies regularly release both stocks and bonds as a means of raising funds to pay for expansion. But stocks and bonds operate quite differently. Bonds are only allowed to be released by firms as a means of paying for their operations in the short term.

With the money that a company manages to make through the money it raises through its sale of bonds, it must repay the initial bond, typically with interest on top, to the investor. Bonds have a fixed time period, and by law can only help a firm to raise capital in the short term.

Stocks are released only when the value of a complete firm is calculated. This total value is then split up into equal shares. These stocks can then be issued for sale on the stock market, allowing firms to raise capital. Unlike bonds, the firms are not required to repay any of the revenue raised by the sale of stocks.

Corporate bonds are those issued by private ...
... sector companies, and are always issued in the short term only. Government bonds are those released by local and national governments. Government bonds can be of a longer term than corporate bonds, with some government bonds spanning a period of as much as 30 years.

Stocks generally exist for longer periods, typically for as long as the company selling the stocks is in existence. Companies can however buy back stocks, making themselves private companies again rather than public companies, but this is rare.

No investment is one hundred per cent secure, and stocks and bonds investments are no different. The credit ratings of companies are important in setting the price of both stocks and bonds, with firms who have lower credit ratings being deemed as riskier investment options.

Bonds are seen as being the less risky option as it is unusual for a company to ever default on bonds sold. This means that investors can take bigger risks when it comes to the credit ratings of the firms that they choose to buy bonds from, as companies with riskier credit ratings tend to offer far higher interest rates to help them sell bonds. Lecia Selbo opened his own corporate bonds with Legal