What are the differences between bonds and stocks?
If you are attracted to the world of investments, you have most likely heard about bonds and stocks. What does each alternative consist of and how do they differ? We tell you.
Differences Between Bonds and Stocks: What is a Bond?
The Ministry of Economy and Finance defines it as a title that the investor can acquire for a certain amount of money, obtaining in exchange the right to receive future payments periodically.
The bonds can be issued by companies, the State, municipalities or local governments that need to raise money to finance their activities. In addition, they must specify its value, type of currency, term, interest, date and other conditions for its reimbursement.
Differences Between Bonds and Stocks: What is a Stock?
According to the securities attorney, shares are titles that give their buyers rights over the assets of the companies that make them available. For example, if a company is divided into 1,000 shares and we buy one, we would own or share 0.1% of it.
The value of stock not only depends on a company’s performance over time but is also an indicator of its real value as an organization.
What are the differences between bonds and shares?
Both are very different from each other. Some important differences are:
- When you buy bonds, you are making loans to the issuing entities, with established maturity dates. On the other hand, when you buy shares from a company, you become its partner or shareholder and you can participate in its profits until you decide to sell the share.
- Management categorizes bonds as a fixed income investment since they establish payment obligations (plus interest) for your benefit, whose amounts you would already know in advance, on certain dates.
- Elder fraud attorneyclassifies shares as a variable income investment since their value can vary to a greater or lesser extent according to the performance of the company, economic stability, market expectations, etc.
- A stock carries more risk than a bond, but it also has a higher return expectation.
What are Shares and how do they relate to your fund?
If you are interested in the topics of the world of investments, surely on some occasions you have heard about stocks. But what are actions? Today we tell you its main characteristics and its relationship with your retirement fund.
What are shares?
A share is a financial asset that represents a fraction of a company’s equity. By buying shares, the investor obtains rights over the company that makes them available, depending on the number purchased.
To give a fairly simple example, if a certain company divided its assets into 100 shares and we bought one (1), we would be shareholders of 1% of it.
- They help assess the real value of companies.
- Not all companies have the same number of shares. Each one determines how many shares to divide its assets into when issuing them.
- The owner of shares is called a shareholder. A shareholder can be a natural or legal person.
- When you buy shares, there is no guarantee of profits, since the value of a share is not static, but can appreciate or lose value over time, depending mainly on the financial situation of the company.
- Buying shares is considered a variable income investment, because, unlike a fixed-income investment, here the uncertainty or risk is greater, as well as the return potential.
- The purchased shares can be held for a defined period and sold at any time.
Stocks and your pension fund
To obtain long-term returns for your retirement, your investors invest your fund in a diversified manner in Peru and the world. Part of this management consists of investing in authorized financial instruments that give rise to assets, such as shares, but also bonds, certificates of deposit, among others.
Who regulates these investments?
The Superintendence of Banking, Insurance and AFPs (SBS) is in charge of regulating and supervising the Financial System. One of its tasks is to guarantee the transparency of the investments made with the pension funds, since these are not part of the assets of the AFPs, but rather belong to the affiliates.