Robert Wickboldt III Explains the Differences Between Bond Markets and Stock Markets
Robert Richard Wickboldt III is a real estate investor and day trader. He enjoys trading and educating others about the process. He believes that both bond and stock markets can be profitable when properly invested in.
In simple terms, stocks are shares of a company that can be purchased. Bonds, on the other hand, represent a loan that you give to a company or a government.
Both are sold as a way of investing, but they are typically sold on different exchanges.
Purchasing stocks gives you a tiny piece of ownership in the company, according to Robert Wickboldt III. When you purchase a stock, you do so with the belief that the company will increase in value.
As the company value increases, the value of each of the company’s stocks you own also increases in value.
Stocks can also be split when their value increases dramatically. If you have one $20 stock, a stock split will give you two $10 stocks. This makes the stocks easier to purchase because of the lower price per stock.
The most prominent market for buying and selling stocks in the U.S. is the New York Stock Exchange or NYSE. NASDAQ provides global stock trading.
The bond market is also known as the debt and credit market. When you purchase a bond, you are essentially providing a loan to the company or government entity you purchased the bond from.
Rather than a variable interest rate based on performance, each bond has a set interest limit. You’ll hold the bond for a set period of time and earn interest throughout this time.
Bonds aren’t commonly purchased by individuals. Instead, they are typically bought by asset management firms, banks, and hedge funds.
Risks and Rewards of Bonds and Stocks
Wickboldt explains that bonds are typically considered less risky than stocks. They also provide less reward or return on the investment. However, there are risks and rewards associated with both types of investments.
Stocks are considered high-risk, high-reward investments. Some companies thrive, while others fail. An increase or decrease in the company’s value will affect your investment.
If a stock drops dramatically in value, you may lose much of the money you invested. However, a dramatic increase in value will also provide a large increase in your investment.
Bonds are not completely without risk. If a company doesn’t perform well, it may not be able to make its interest payments. Like stocks, the value of bonds can fluctuate as well.
If you sell a bond before its maturity date, which is the date agreed upon when you bought the bond, you may not receive the same amount you originally paid for it.
The advantage of bonds is that, barring these issues, they provide a known return on your investment. You know how much you can expect to receive. Stocks are a gamble. You may get a greater return on your investment, but you can also lose your investment.
Robert Wickboldt III is originally from Houston, Texas. His father was in the military, so he moved to many places as a child. Much of his childhood was spent on the East Coast. In addition to real estate investing, he enjoys contributing to the arts and traveling.