The Pros And Cons Of Bonds

The bonds can be issues with fixed interest or variable rate interest, each of which has its advantages and there disadvantages.

In the beginning, there was no real stock market. However stock exchanges did take place in smaller groups and corporations. This all took place during the 1700's where stocks were already around for a long time before that but it wasn't really popular in the United States. Stocks originally started as auctions where traders called out names of companies and the shares available. There was a auction that took place and the shares went to the highest bidders.

Bonds require a minimum amount of money to purchase and a minimum length of time to hold on to the bond.

* Bond - A type of debt or a long-term promissory note, issued by the borrower, promising to pay its holder a predetermined and fixed amount of interest each year. Bonds provide the borrower with external funds to finance long-term investments

The “Stock Market” is a term that actually describes several markets such as the New York Stock Exchange NASDAQ, where the stocks of companies are traded. Shares in a company are sold and the shareholders then become part owners of the company. Offering shares of stock raises money for continued research and development of company products or services.

Bonds act as an investment instrument which the investors invest their money to the bonds and bonds can provide a means of preserving capital and earning a predictable return. While many investments provide some form of income, bonds tend to provide the highest and most reliable source of income. Even at the time of low interest rates, there are still plenty of options (such as high-yield bonds and emerging market bonds), investors can use it to construct a portfolio that will meet their income needs. The most important thing is diversified bond portfolio can provide decent yields with lower volatility than equities and higher income than money market funds or bank instruments. Thus, for those who need to live off of their investment income bond is a popular choice.

According to Celebrity Net Worth, bonds are financial instruments that are sold to raise money. "When you buy a bond, you are buying debt: you are basically loaning money in exchange for an interest payment and a promise that the money will be paid back."

Series EE bonds cannot be bought or sold in secondary market. These bonds have a guarantee from the U.S. government to at least double in value over the first term of the bond. The first term usually lasts for 20 years, but most EE bonds have an interest-paying life that extends an additional 10 years past that term. Interest income from EE bonds are exempt from state and local taxes, and coupon rates are assigned based on a certain percentage value of long-term Treasury rates. Much like EE bonds, series I bonds are non-marketable. Unlike EE bonds, they do not come with a guarantee to at least double in value over the initial term of the bond. Instead, I bonds come with a fixed coupon rate and receive an additional inflation-adjusted interest rate that is adjusted semi-annually. Stocks are a shared ownership of a company. Stocks are a claim on that company's assets and earnings. The more stocks you buy from a company the more of that company you own. Once you buy a stock you become a shareholder and you also receive a stock certificate. You can also sell your stock on the stock market. So if your own a stock while the company grows your share is more valuable which allows you to make a profit off of

The Stock Market is an organized market for the trading of stocks and bonds. In Europe a stock exchange is often called a bourse. Stock exchanges exist in all-important financial centers of the world. Members of an exchange buy and sell for themselves or for others, charging commissions. A stock may be traded only if it is listed on an exchange after having met certain requirements. The New York Stock Exchange (founded 1790) is the largest in the U.S., handling more than 70% (in market value) of all transactions. The American Stock Exchange (Amex), also in New York City, and regional exchanges account for the remainder. Unlisted shares, often of smaller companies, are traded in the growing over-the-counter

It provides an evaluation of the bond issuer’s financial strength and ability to pay back the bond’s principle and interest. The bond rating also provides investors with some sense of security when investing in a particular firm. A higher bond rating implies a lower likelihood for the firm to default. Investors would feel more secured investing in such a bond, thus demanding a relatively lower rate of return. As such, high rated bonds enable the issuer to enjoy a lower cost of borrowing. A lower bond rating, on the other hand, serves as a negative signal to investors on the firm’s ability to repay debt obligations.

Bond’s with collateral will have lower coupon rate as bondholders have claim on collateral no matter what. It provides an asset which lowers default risk. Downside to company is that this collateral cannot be sold as an asset and needs to maintain it.

The rate of return is the gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. In finance a rate of return measurement can be used to measure virtually any investment vehicle. ("Investopedia", 2012).

Many government related institutions issue bonds, some supported by the revenues of a specific institution and some guaranteed by a government sponsor. For example, in Canada they have a bank that issue bonds that are guaranteed by the

The Treasury issues three types of marketable securities - bills, notes, and bonds. These securities are direct obligations of the United States Government. When originally issued, they are sold through an auction process. They are commonly known as marketable securities because after their original issue that may be bought or sold in the secondary (commercial) market at the prevailing market prices through financial institutions, brokers, and dealers in investment securities.

Bonds and Debentures are usually much more rewarding banks or government bonds and investments and provide a higher rate of financial return for their investors. Another great feature of the bonds is that at the end of the lending companies usually offer in assets in the form of stock, which can ultimately very valuable. Equity is another great form of investment and sometimes better than receiving immediate cash in return.