There are still many people, especially beginners who don’t know what the difference in stocks and bonds is. Although both are included in the ranks of profitable investment instruments, the two investments are different, you know.
Therefore, this time GlobeMoney wants to provide a complete review of the differences between stocks and bonds, especially for those of you who are new or going into the investment world.
The goal is so that you can produce maximum profits. In addition, according to your investment objectives. Because, one of the keys to successful investment is the selection of investment instruments in accordance with the objectives. For that, it is very important for you to choose the right type of investment.
No need to linger, just go ahead and see the difference in stocks and bonds below.
What are stocks and bonds?
A screen that displays stock trading in the capital market.
In general, stocks and bonds have almost the same purpose, namely to invest capital or funds to reach the coffers of wealth from the company.
But the difference is, when a company issues shares it means they sell part of their ownership to another party. Well, the difference with bonds, when companies issue bonds, that means they issue bonds that you can buy. You who have bonds are entitled to get payments from the principal debt plus interest.
So, stocks are a form of ownership of a company that is usually in the form of documents. The shareholders have the right to benefit the company or often called dividends.
Bond purchase form at a bank in the country.
While the bonds are debt securities issued by companies and government agencies as a form of borrowing money which will then be repaid as much as the cost of debt and interest or the term is called a coupon.
Equity of stocks and bonds
As explained above, stocks and bonds are investment instruments that are very profitable and can generate many benefits. Here are three equations:
1. Having a claim on profits and assets
The shareholders and bonds have claims for profits and assets. Because the two investment instruments promise to the owners of income in the form of assets, namely money and other assets.
Well, the claim occurred on the date of the transaction or when buying shares and the signing of a bond which can then be executed at maturity. So, essentially the shares and bonds promise income for the owners.
2. Have redemption rights
The shareholders and bonds also have redemption rights, namely the option to exchange stocks and bonds with money.
Another equation between stocks and bonds is securities. So, both are black and white agreements in the form of agreements and have been agreed by both parties. Well, these securities can be traded on the stock exchange and the capital market.
Also read: With 6 Tricks You Have a Big Chance of Opportunity from Playing Online Shares
Types of stocks and bonds
Before plunging to allocate your funds to one of these investment instruments, there are several types of stocks and bonds that you need to know, such as:
- Common shares (common stocks) have a claim on the income and assets of the company. However, the obligations are limited, which means that when the company goes bankrupt, the loss borne by shareholders is only the size of the investment.
- Preferred stock ( preferred stock ) has the characteristics of ordinary shares and bonds. So, the income earned is a dividend whose rate is fixed like a bond interest. Even preferred stock owners will get the main rights in dividends when the company is liquidated.
- Bail bonds (secured bonds), the type of bond that is secured by certain collateral. These types of bonds are in the form of bonds, guaranteed bonds, mortgage bonds, bonds with collateral bonds and bonds with equipment bonds.
- Unsecured bonds (unsecured bonds), which form bonds that are given only in the form of mere belief, such as debenture bonds the government issued bonds and subordinate bonds.
What happens when a company goes bankrupt?
Apart from the different sources of profits, there is the most striking difference between the two investment and stock instruments, namely when the company goes bankrupt or goes bankrupt.
Stock investors will be the last to get a refund when the company goes bankrupt. While the bondholders will be the first party to get the rights when the company is bankrupt.
So, when bond owners have obtained their rights, then the remaining money is distributed to shareholders. Even in the worst conditions, shareholders can get nothing when the company goes bankrupt.
Table of similarities and differences in stocks and bonds
|Short description||Letter of ownership of the company||Debt securities|
|Agency that can issue||Public company (Tbk.)||Company and government|
|Profit sharing||Dividends, taken from the company’s net profit||cost of goods and interest|
|Time period||Not limited, as long as the company still exists||Limited, the payment term has been determined|
|Obligation of the agency to pay||Only if the company is profitable||Very obligatory to be paid|
|Investment risk||Big, because companies can lose money or go bankrupt||Small, because companies must pay, regardless of company profits|
|Investment benefits||High risk, high reward.
If profitable, it can generate large amounts of money, bigger than bonds.
|Low risk, low reward.
Bondholders must get a number of profits each year.
|What happens if the company goes bankrupt (liquidation)||Shares become worthless. The company pays the last profit, if any.||Bondholders are prioritized to be paid. The remaining company assets can be used to pay bondholders.|
|Taxation side||Dividends are part of company profits after being taxed||Bond interest is first issued as a fee (not taxable)|
|Price fluctuations||Stock prices fluctuate and are sensitive to macro and micro economic conditions||Bond prices are relatively stable and sensitive to interest rates and inflation|
|Voting rights over the company||Shareholders have voting rights on company policy||Bondholders have no voting rights on company policy|
|Example||PT Sampoerna Tbk shares
Bank Central Asia (BCA) Shares
|Government Bonds (SUN)
Indonesian Retail Bonds (ORI)
Which is better, stock or bond investment?
How, now you know the difference between stocks and bonds? So, even though you can give a lot of suggestions, it is clear that the two instruments have quite striking differences.
Furthermore, which type of investment should be chosen, stocks or bonds?
If you ask like that, the answer is definitely back to your risk profile. What does it mean? Yes, so you need to know how much risk you dare to bear.
If you fall into the category that is ready to bear high risk, aka aggressive investors, then stock investment can be the best choice. Especially if your age is still young. Because the stock is included in the type of long-term investment. So, you can enjoy maximum returns above 10 years.
In the meantime, if you belong to a conservative investor, if you cannot bear high risk, invest in bonds. Besides being safe, bonds are also the right choice for you who are starting to retire.
That is a complete review of the differences in stocks and bonds which might be your consideration to collect money from investments. Whatever the choice of investment, make sure that it suits your purpose. Come on, start investing now!