Introduction
Unlike stocks that imply participation to the social capital of the respective company, the bonds are only loans given by the buyer of those instruments for a determined period, at a fixed or variable income that could be transferred to another investor. The companies have the possibility to borrow from the banks to finance their projects, but collateral warranties are requested. An alternative for those companies are the bonds. A smart trader knows how to handle both of those instruments, and to obtain profits from both of them. On the other hand, going from bonds to stocks is a decision of the investor, and it is based on several considerations.
History
The bonds are safe instruments that are issued by major companies and governmental institutions. This is why they are considered safe instruments. Going from bonds to stocks means that the investor understood the rules of the market, so he is now prepared to take more risks than before. The interests connected to stocks are higher than the ones of bonds, but the risks connected with those instruments are also bigger. An emission of bonds is considered a great alternative to stocks only if the investor is willing to take more chances, as along the time, it was proven that the incomes of stocks are greater than the ones of bonds. However, this only happens in normal market conditions. In our times of financial recession, the bonds are great alternative to stocks, as they are safer.
Features
The bonds issuers could be institutions of the public and central administrations or private companies. In this case, they are called corporative binds. Theoretically, the risks connected with the governmental bonds are considered minimal, as it is hard to imagine that those companies will declare bankruptcy. This is another reason why bonds are considered good alternatives to stocks by some investors. An important criterion to decide if it is time to go from trading bonds to stocks is the stability of the market. Some bonds pay the coupon monthly or yearly, while other bonds will pay interests only at the date of maturation. The system comes to support the issuing company, and the investors, as both parts will benefit from this system. The bonds that pay all the interest at the end of the contract are considered risky, but their risk is significantly smaller than the one of stocks. On one hand, the issuing company could use the money for a longer period, but the interest is also higher, and the financial effort at the end of the contract is hard to sustain.
Tips and comments
Another important criterion that might convince you to go from bonds to stocks is the interest and the way it is calculated. This way, in some situations, the interest is fixed, no matter what the evolution of the market is, and in other situations, the interest is variable, considering the current conditions on the market. For the periods when the reference interest is growing, it is a good idea to place your money from bonds to stocks, and it is recommended for the companies to borrow money with fixed interests.
