If you want to increase your capital, there are several ways to achieve this goal. Investing free funds in securities is a simple and effective method. Among the most popular securities are bonds and stocks.
How stocks differ from bonds
Stocks and bonds allow you to increase the investor's capital. Like all securities, they have certain characteristics. If we talk about shares, then these include securities issued by a joint stock company at the stage of reorganization or creation of an enterprise. The shareholder becomes the owner of the enterprise and receives dividends. Note that an enterprise may not make payments, but direct funds to the development of the enterprise.
Bonds are securities that are issued to raise funds. The issuer issues a bond to a legal entity or individual in exchange for cash. Bonds are issued for a specific period. If you buy bonds, you can earn interest income. In addition, after the expiration of the term, the issuer is obliged to return the discount to you. This is the money that you paid when purchasing the bond.
The owner of the bond has the status of a creditor, he does not become the owner of the enterprise. The success of the enterprise will also not bring him much profit. The main risk is associated with the fact that the company may not pay the original cost of the securities. To avoid this, it is best to buy blue-chip bonds.
If you compare stocks and bonds, there are many differences. The first difference is the ability to run a company. By purchasing the company's shares, you will become a shareholder. You will be able to influence the decisions made at the Shareholders' Council. The more shares you have, the more of the company you will own.
Ways to generate income
There are preferred and ordinary shares. With preferred shares, you will receive dividends before other shareholders. However, it should be noted that you will not be able to make decisions and influence the activities of the company. Please note that the ability to receive dividends is far from the only way to generate income.
You can earn income from stocks by buying and selling securities on the stock market. After the stock prices rise, you can sell the stock. In addition, it is possible to generate income by trading stock options or CFDs on Forex. They trade stocks over the Internet through brokers. Remember that speculative trading carries high risks.
If we talk about the opportunity to increase capital, then the potential income from owning stocks is higher than from owning bonds. Nevertheless, one should take into account such an unpleasant event as the bankruptcy of a company. Then the interests of the bondholders are first satisfied, and only then the interests of the shareholders.
