Differences between a stock and a bond?

Bonds are financial products that you purchase to make your capital profitable. These products are less known than stocks and also have completely different characteristics.

When buying a stock of a company you invest directly in the capital of this company. A stock is therefore a property title. In exchange for this investment, the company will reward you as often as possible by distributing its annual profits in the form of a dividend on the share. This dividend is, of course, variable: its size depends both on the chosen strategy by the directors and on the profit opportunities of the company.

When buying a bond you lend your capital to an organization that will pay off its debts or realize investments (the publisher can therefore be both an entrepreneur and a public group or a State or ...). A bond is thus a debt claim. It is proof that the publisher owes you a certain sum. In exchange for your loan, the publisher will reward you as often as possible by paying an interest in the form of a coupon. The name 'coupon' dates from the past: these financial effects were printed on paper and the collection of the interest was done by issuing the coupons that were cut from the paper effect.

A bondholder therefore has a different role than the stockholder. Even if the intended purpose of the bondholder is similar to that of the stockholder (= seeking returns for his assets), he behaves more like a 'lender' than as an investor. What then actually offers the best return?

The advantages of a bond:

The benefits of a bond can not only be measured in terms of profitability but also in function of the risk. If you lend money to someone, you may assume in principle that your loan will be repaid. The borrower agrees indeed to reimburse a certain amount within a predetermined expiration period. Only in the event of the publisher's inability (such as bankruptcy) will you no longer be completely certain that you will see your capital again. Bonds are therefore generally less risky than equities.

Another advantage: owning a stock does not mean that you will always receive a dividend, while as a bondholder you will receive a fixed yield in almost all cases (the size of your annual interest is known at the time of the purchase of the security).

When buying a stock you bet on a (financially) positive future of the company; With a bond you (the lender) sign, as it were, a contract with the borrower with which you immediately reach agreement on certain matters.

Because the risk is lower, the expected return is usually also lower. But in the context of a diversification of your portfolio in order to be best armed against the risks of the stock exchange, bonds therefore have a good place in your assets. However, before you compose your portfolio, you should still know that there are different types of bonds that do not all have the same degree of risk.