Invest in the stock market or bonds?

There are several popular types of securities on the stock exchange. You can choose the instrument that suits you, based on the amount of the deposit and your desire to participate in the process:

  • stock
  • bonds
  • contributions to Investment funds (UIFs)
  • exchange-traded funds (ETFs)

Let’s figure out what to Invest in: the stock market or bonds?

Comparison of stock and bonds returns

A stock is a security that confirms the right of its owner to a certain stock of the capital of a company – a joint-stock company. A stock is a part of the company, and it gives the right to receive a stock of the company’s profits or its property. The amount of profit that the purchase of stocks promises can be estimated from the ratio of the number of stocks purchased to the total number of stocks issued.

The mechanism of trading on the stock exchange is simple: you need to buy cheap, and sell high, and the margin is your income. However, this implies constant involvement in the process – this definitely cannot be called passive income.

Bonds are debt securities that a company issues when it wants to raise investment. Essentially, when you buy bonds, you are lending money to a company. Naturally, not a single loan is issued just like that, so you, the investor, will receive interest, the amount of which and the term of issuance are agreed upon in advance. The interest rate, or your profit from buying bonds, is called the “coupon”.

Bonds are considered fixed-income securities because you know in advance how much income they will bring you. Moreover, when buying bonds, you will know approximately when you will make a profit since many of them have a fixed maturity date.

The profitability of property instruments depends on what type they belong to:

Ordinary stocks entitle the co-owner to receive dividends only if the issuing company generates net profit and distributes it to dividend payments by the decision of the stockholders. Preferred stocks can bring the owners a fixed income, but do not allow them to vote at stockholders’ meetings and participate in management. At the same time, the yield is usually higher at a relatively low cost compared to ordinary stocks due to low liquidity.

Traders, as a rule, prefer ordinary stocks, as they derive their main income by trading securities, and their liquidity is higher than that of preferred ones.

It is important to emphasize that one of the main differences between bonds and stocks is that when purchasing debt securities, the client can immediately assess their potential yield. It is worth noting that at the time of purchase, the price of bonds is less than face value, but at the time of redemption, the investor will receive their full face value.

There is money to be made in selling bonds, as the price will fluctuate at any time between purchase and redemption.

Comparing stocks and bonds in general, we can say that, as a rule, the yield of stocks in percentage terms is higher, mainly due to the unlimited growth of quotations.

Advantages and disadvantages of the stock market

✅ Pros❌ Cons
  • High long-term profitability.
  • High volatility
  • Buying and selling stocks takes seconds.
  • Flexibility in risk and return management.
  • You can invest even a small amount of capital.
  • Stock prices need to be monitored constantly.
  • Profit is not always guaranteed.
  • High interconnection between the various elements of the system, which is almost impossible to calculate.


Advantages and disadvantages of bonds

✅ Pros❌ Cons
  • The tool suits well for long-term investment plans.
  • Profitability is higher than on deposits.
  • Weak dependence on papers on the stock market
  • low risk
  • Possibility to sell bonds at any moment
  • Most bonds will not make a lot of money quickly but will provide a significant return in 5–15 years.
  • Low yield
  • No insurance


What are popular brokers saying about bonds and the stock market? 

RoboforexFirst you need to determine the key goal of investments: making a high profit or creating a moderate source of income with a low probability of loss. For example, if an investor intends to make a portfolio for the retirement period and not touch it for 20 years, then bonds can be added. It will not provide full protection, but will partially reduce the risk of losing funds.
ICMarketsDespite the attractive yield of stocks and the high reliability of bonds, the best option is the presence in the investment portfolio of various types of securities that are comparable to each other both in quantity and value.
DotBigHow to invest is up to you. Our financial consultants advise diversifying your portfolio: having not only stocks but also other securities and currencies in your assets. DotBig investments tools will help you make smart investments in the market.
ExnessWhen choosing what you want to invest in, you should understand the difference between the two types of assets. In simple words: stocks are the capital of the company, and bonds are the debt. This is the main difference between the two types of securities. When you buy stocks in a company, you are essentially a co-owner and can participate in the life of the organization: if you buy a large block of stocks, you will have the right to vote on the board, as well as the right to a stock of any company income in the future. Bonds do not provide for such preferences: you simply lend the company funds, and it undertakes to repay them with interest within a specified period, no more.
FXTMWith stocks and investments in it, everything is very clear. But as far as bonds are concerned, the situation is more complicated. For example, if the borrowing company is declared bankrupt and liquidated, the bondholders will not get their money back and will not receive income. Therefore, before buying bonds, it is worthwhile to conduct at least a basic analysis of the company but to reduce risk, invest in several assets at once.

Stock market vs bonds, where to invest?

A smart investor buys both stocks and bonds to balance the portfolio. Stocks can be more profitable, but bonds are safer. Using DotBig LTD tools, it will be much easier for you to choose assets that guarantee profit.

And remember the difference between these assets. stocks give the right to own a stock of the issuer’s proceeds. A bond means lending to the issuer for a specified period. Both types of securities can be resold in the secondary market and profit from such a transaction.

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