If done correctly investing into stocks and bonds can be pretty powerful. So, what exaclty are stocks and bonds, and how can they help you to make a profit?
Basically stocks allow people to become a partial owner of a specific company. So, if you buy stock in Microsoft then you own a percentage of Microsoft. As that company grows overseas and expands then the stock also appreciates.
If the company offers a stock paying a dividend then the company is actually paying their investors a small percentage of their profits just for holding onto their stock. If you owned stock in a company and they made money last month they can send you a percentage of their earning.
Bonds work slightly differently. If a company needs to borrow money they can always issue something called a bond. Investors that buy bonds don’t own part of the company and do not receive dividends.
Instead bond holders are holders of debt. Bonds are pretty much loans, when you buy a bond you give a loan and reveive interest payments. This is very similar to how morgages work only you play the bank.
When the bond eventually expires then the company pays back their investors the face value of that bond, hopefully for a profit. Then investors may choose to take that money and reinvest it into another bond to make more.
So, which investment is better? That is up to each investor. Normally bonds are considered safer because it does not need a company to grow in order to make money. But if you look at a stock market graph it is easy to see that stocks tend to be more profitable over the long term.
Some investors will do half and half, others will choose which investment fits them the best. But in the end it is really up to each individual investor to determine which one is best for their specific goals and risk tolerance.