31/01/2021
*THE BEST INVESTMENT YOU CAN MAKE IN YOUR 20S – STOCKS VS BONDS*
Stocks Vs Bonds – which investment option is better and why?
As a young person, it is important to keep refining your knowledge of investments so that you can take advantage of emerging opportunities. It is only by doing this that you will be able to get your money to work for you instead of leaving it to lay idle in a bank account.
Today am going to share with you some important information you need before you start investing.
*What Are Stocks and How Do They Work?*
A stock (or a share) is a small piece of ownership in a business. For instance, in 2008 Safaricom went public and offered every person an opportunity to own a piece of it. Each share was then priced at Ksh.5.
Let us say Mr. Juma bought stocks worth Ksh.10,000 at that time. So technically Mr. Juma became an owner of Safaricom — and as you know when you become a business owner, you are entitled to a share of its profit at the end of each financial year.
*What Are Bonds and How Do They Work?*
A bond is a debt, and when you buy one you are simply lending the government your money. For example, the Central Bank of Kenya (CBK) sometimes back rolled out M-Akiba bond that you can buy for as little as Ksh.3,000.
Let us say Mr. Otieno buys bonds worth Ksh.30,000. So technically Mr. Otieno has lent the government his money — and as you know when you lend money, you are entitled to getting the agreed interest rates (also known as coupons or bond returns).
*Which Investment Pays More?*
Stocks tend to pay more particularly if you invest in a profitable company. But timing is key. If you buy stocks from a growing company then you can only hope for good returns.
Bonds on the other hand give you relatively less but smooth and guaranteed returns (typically 12.5%). They are a good option if you are a long-term investor especially due to the power of compounding (in the case of zero coupon bonds).
*How Much Can I Make If I Invest Ksh.10,000?*
