Stock markets have a vast selection of stocks and bonds that can be invested in and before deciding what to invest in, understanding the main differences between stocks and bonds well is absolutely key if you consider getting in the stock market. Investors can decide whether they want to invest in just shares, just bonds or whether to create their own mix of stocks and bonds. With time, many furthermore decide to slowly reallocate their investments, so even if you start with a certain percentage shares and bonds, this needn’t stay as such for the rest of your investment life.
Here we’ll look at the main differences between shares and bonds from an investor’s point of view and how they both offer different advantages and disadvantages.
Share prices vary more day-to-day but also over long periods of time: their value can increase or decrease fast.
Bonds are generally more price solid and fluctuate less over time and at a much slower pace than shares.
Here starts a new part of our 100 steps to financial independence, with this being the first step in a mini-series on investing.
If you are serious about money, it is worth understanding more about the stock market and at least get a basic idea of what it is and how it works, before you decide for yourself whether investing will be something you would like to start doing. Investing is often a long-term decision and depending on the risks you are willing to take, you might or might not feel that investing is the right thing to do for you.
Let’s start with one of the key components of the stock market: shares (also known as stocks) and find out what they are, why they exist and how they make or lose us money.
What is a share
A share is basically a very small part of a company. If you have a share, it means you own a part of that very business and the more shares you have, the bigger the part you own of that company. Continue reading →
Time to look at our 5th possible income stream, which is dividend income. This type of income is based on company profits paid out to the shareholders of that company. Before you dismiss this type of income as not your thing, read on and then jump to the investing steps later on, as you’ll find that investing can be more or less risky, depending on the risk that you feel you can deal with and you can start with very little money, yet over the years build up a considerable portfolio.
Now back to the dividend income. If you have shares in a company, you basically own a tiny part of that company. If that company then makes a profit, some of that profit goes to the owners of that company, i.e. the shareholders. Continue reading →