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Investing: Stocks vs Bonds

By Edited Nov 24, 2013 0 0

In the world of investing the two most common forms of business transactions are buying and selling stocks or bonds. Here are the basics.

Stock is a certificate or another form of documentation showing ownership in a company. In other words, it is legal proof that a person or persons own a stake in a company. Stocks can either be inherited, purchased from a brokerage firm or online. Also another form of investing is called "DRIP" (Direct Re-Investment Purchase) investing. This is where the consumer purchases stock directly from the company and eliminates the broker. Investing can now be utilized online and over the past 5-years, online investing has grown tremendously. Investing online is 24-hour per day opportunity and has its benefits. When a person owns stock he or she will receive from the profits of that stock called "dividends." Dividends are money that is earned through the stock and is paid out either quarterly or monthly. Here are just a few stock-investing basics to remember.

1) Stock is taxable and tax deductible.
2) When a company becomes bankrupt, the price of stock depletes and the investor loses money and the stock loses value.
3) Selling stock is an easy process with a broker without a broker.
4) Set a goal as to what type of investing to partake in such as short-term investing or long-term investing.

Another type of stock investing is penny stock investing and that investing in newly start-up companies. Also stock investing that is not through the stock market on Wall Street. Stock market fraud in a serious problem and the Securities and Exchange Commission are bombarded with complaints of fraudulent activity, so research the brokerage firm and company before investing.

Bonds are certificates or other forms of documentation that is sold to the purchaser of the bond as a debt security. The person or persons who owns the bond, becomes the creditor to the company who purchases the bonds and the money borrowed through the purchasing of bonds must be paid back. The two distinct differences in owing stocks or bonds is that stock is part ownership in a company and bonds are debt securities that make a bond holder a creditor. The interest is called a "coupon" and when a bond matures, the principal of the bond with interest must be repaid. There are many types of bonds and the bond market is where these bonds are purchased and sold. Bonds are insured up to $100,000.00 by the government and the bonds have a maturity rate usually up to 10-years and are taxable up to 3%. Here's a small list of the familiar types of bonds available to purchase for the beginning or novice investor.

1) US Treasury Bonds-purchased from the Government and are insured by the government.
2) Municipal Bonds-purchased from local municipalities (local, state & federal).
3) Savings Bonds-purchased from the US Treasury direct.

Both stocks and bonds can be a good investment for anyone looking to learn about investing.


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