Bonds and shares are arguably the most popular investments in the world. As a result, you will find them in almost every investment portfolio. But what exactly is the difference between a bond and a share? In this article, we will discuss multiple differences between stocks and bonds.
What are bonds and shares?
First of all, it’s essential to understand what bonds and shares are before knowing the differences between these two.
A bond is a loan issued by large companies or governments. Investors can invest in this because bonds can be traded via the stock exchange. Typically, the investor receives interest and gets his investment back at the end of the term.
A share is a piece of ownership of a company. Shares are also traded on the stock exchange. As an investor, you benefit as a shareholder from any dividend payments and price increases.
The differences between shares and bonds
Shares and bonds are very different. Below we will discuss the main differences.
1. The difference in risk
The degree of risk between a bond and a share varies considerably. Shares are riskier than bonds. A bond usually has a fixed term and interest coupon. It doesn’t matter whether a company makes a profit or a loss. A bond investor is always entitled to the agreed interest. In addition, a bondholder gets his investment back at the end of the term, provided the company does not go bankrupt.
A shareholder is not entitled to a fixed fee, and the term is infinite. The return (capital gain or dividend) depends entirely on how the company performs. In addition to the performance of the company itself, stock market sentiment also plays a role. Political events or recessions can have a significant impact on stock prices.
2. The difference in price movements
Despite the fact that the interest on a bond is fixed and you get your money back at the end of the term, the bond price can fluctuate in the meantime. This can be disadvantageous or advantageous if you want to sell your bond in the interim. This is because the cost of a bond mainly depends on the interest rates. Therefore, when interest rates rise, the price of a bond falls and vice versa.
Share prices generally fluctuate much more strongly. Therefore, the risk is also higher. In addition, you are directly dependent on the company’s performance and are not entitled to a fixed fee or refund of your investment.
3. The difference in rights
With bonds, you are usually entitled to interest. The interest coupon of bonds is often fixed in advance and is paid periodically. Thus, at the end of the term, you will receive your investment back. Bonds come in all kinds of variants, whereby the conditions and rights may differ.
Shareholders are entitled to dividends when the company makes a profit. In addition, if the company achieves exceptionally high yields, a super dividend can also be paid. Furthermore, shareholders have the right to vote at the General Meeting of Shareholders and priority when subscribing for new shares.
4. The difference in use
Shares and bonds are both used by both professional and private investors. Shares are usually used to earn high returns, while bonds typically serve as a safe, stable investment. In addition, pension funds often use government bonds to cover certain obligations. Bonds are very suitable for this because you can easily calculate what return you can expect and get back the invested capital.
The Series A equity round of Max Property Group
Max Property Group has prepared a Series A equity round to keep up with the developments of the crowdfunding platform Max Crowdfund. The equity round intends to raise €4.25 million. The raised capital will be used for the technical development of the platform and obtaining regulatory approvals as it expands into new jurisdictions.
Max Property Group has issued a total of 12.000.000 shares, of which 3.300.000 shares have been assigned to cooperation, the Max Property Coöperatie U.A. (MPC). MPC, in turn, has issued 3.300.000 Max Property Group Share Certificates (MPG), which are maintained in a register of MPG holders and are, of course, registered on the blockchain. Each share certificate is valued at €2.50 in the series A round and has the same voting rights and right to profit share as normal shares.
Written by: Julia van der Kooij