Stocks and Bonds and Options OH MY!
Stocks, Bonds and Options three investment instruments. Which is better? What are they?
As we discuss investing it is best to lay some ground work. Let’s define these three investment vehicles.
Stocks
Stocks are an ownership interest in a company. Many companies issue stock to investors who buy into a company. These stocks could be publicly traded on the stock exchange or they can be issued on a private company. If they are issued on a private company it is difficult to trade them to someone else. Stock issued on a public company is easily traded.
Apple as an example is traded on a public stock exchange and you could easily convert your shares to cash by selling them through a broker. As an owner you participate in profits by an increase in the value of the stock and some companies pay dividends to those investors holding their stock.
Bonds
Bonds are debt issued by a company for which you could lend the company money. In return they will pay you interest. You have no ownership and do not participate in any profits. As a bond holder you have an interest in the assets of the company.
There are many different types of bonds. Bonds issued by companies are known as corporate bonds. They most often pay the highest rate of return. tax exempt bonds are issued by local governments these bonds pay less interest because the interest is not taxed hence the term tax exempt bonds. Then there is the bonds issued by the federal government which are considered to be the safest and pay the lowest rate of return. These are known as T Bills.
Options
Options are a right but not an obligation to purchase a stock at a certain price. You can Buy either puts or calls. If you purchase a put and the stock price goes up you can lose money and risk the stock being put to you. When you purchase a call and the stock price goes up you can purchase the stock at a lower price than the stock currently is currently trading in the market. You also could sell the option a profit.
Let me Know if this quick primer on these investment instruments has been helpful. In future articles I will get further into these investment tools and also discuss the types of investments you can look for to increase your wealth.
If you enjoyed this Money Matters Wealth Tip the series can be found HERE.
Other articles of interest:
10 Easy Steps to Creating a Budget that will put you on the path to Financial Independence
How to get out of Debt: Three popular Plans
So what are you waiting for? Need help getting started, Grab our FREE budget tools to help you along on this very important journey.
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