gold stocks postpage LB desk

Be The Owner, i.e. Buy Stocks Or Be The Lender, i.e. Buy Bonds!

  • March 23, 2019 08:30 AM AEDT
  • Team Kalkine
Be The Owner, i.e. Buy Stocks Or Be The Lender, i.e. Buy Bonds!

Investors have a wide array of asset classes to choose from while deciding on portfolio allocation. The most widely held asset classes are stocks and bonds. As per one school of thought, the portfolio diversification is dependent on the allocation of investable funds between these two asset classes in the individual’s portfolio.

non AMP MTF 10th feb webinar

It then becomes imperative that the difference between stocks and bonds are known to the investor on a fundamental level to make an intelligent asset allocation decision.

Stocks and bonds are issued by the corporate bodies to primarily raise funds for meeting the organisations’ capital requirements, which could be for the expansion of the organisation or to meet the organisations day’ to day operating fund needs. So, from an entity perspective, stocks and bonds are means to achieve its fund requirements.

However, the two are fundamentally dissimilar. Companies basically issue stocks to the investors, wherein the investor gets part ownership of the entity post the purchase of the stocks. Hence the stocks are also commonly referred to as shares. The entity is under no obligation to return the money raised via the issuance of stocks.

Bonds, on the other hand, are debt instruments used by the entities to raise funds. The investor in bonds is basically lending money to the entity for a promised rate of interest (coupons). The entity is under the legal obligation to return the money raised from the investors via the bond issuance.

With the purchase of shares, the investor technically becomes the part owner of the company. The company while issuing the shares does not guarantee any returns to the investor, however, the company could choose to pass on the profits generated to its investors in the form of dividends. It must be noted that the issue of dividend is completely at the discretionary of the company and it could decide to forgo the issue of dividends if it chooses to invest the amount for further projects or retain them as reserves.

On the other hand, when an entity issues bonds, it is legally obligated to pay back the investor the principal amount on its maturity date and the bond coupons as mentioned on the bond certificate. The entity cannot decide to pay its coupon based on its financial position, and if it does not pay the promised investor its coupon, the entity is said to have defaulted on its debt. The bondholder could take legal action on the entity under such conditions.

The value of stocks is primarily dependent upon the economic performance of the company. Also, factors like overall market sentiment and the macroeconomic conditions also impact the stock price. The investor makes money in stocks when the price of the shares moves up in value and, as and when the company pays dividend, i.e. if it chooses to do so. The investor’s major incentive to make money is usually via the appreciation of the share price. However, some investors make an investment in stocks for the dividend income as well.

The bond investor is somewhat immaterial to the economic performance of the company since the interest payment (coupon payment) is predetermined and the company is legally obliged to the bondholder. Even if the company performs enormously well, the bondholder does not get any extra incentive from the company. Hence, the returns are limited and predetermined.

The stockholder comes last in the claim to the entity in case of a bankruptcy of the entity. The bondholder, on the other hand, comes at the top of the claim hierarchy in case of a bankruptcy.

The return on investment in stocks due to the above-discussed reasons is extremely volatile, and the risk is comparatively high as there is no technical legal cover to guarantee the returns. At the same time, the returns from a stock investment are also very lucrative if the concerned company improves its performance.

On the other hand, the return on investment from bonds is predictable and hence are less volatile and relatively safe. The bondholder does not get to make more money than the promised coupon rate, and therefore the returns are limited.


This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.



The website is a service of Kalkine Media Pty. Ltd. (Kalkine Media) A.C.N. 629 651 672. The principal purpose of the content on this website is to provide factual information only and does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) or engage in any investment activity under discussion. We are neither licensed nor qualified to provide investment advice through this platform. In providing you with the content on this website, we have not considered your objectives, financial situation or needs. You should make your own enquiries and obtain your own independent advice prior to making any financial decisions.
Some of the images that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed on this website unless stated otherwise. The images that may be used on this website are taken from various sources on the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image. The information provided on the website is in good faith, however Kalkine Media does not make any representation or warranty regarding the content, accuracy, or use of the content on the website.


We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK