Equities vs. Bonds

Investment Instruments

With traditional forms of securities, a distinction is made between equities and bonds. Shares, for example, are an equity. Subscription rights and participation certificates also belong to this group. On the other hand, fixed-income securities such as bonds, securitize the right of redemption plus interest, at a specified point in time.

Shareholders own a part of the company that they invest in. They participate in the company's profits, which is by no means an entirely safe investment. Bond holders take the position of a creditor, which brings them fixed income througout a certain term. However, in the long run, shares yield higher returns than bonds.

It is advised to diversify ones investment across several companies as well as different investment instruments (such as a mix of shares and bonds). The advantage: losses due to falling share prices can be compensated by gains from bonds.

Just how diversified portfolios are, depends on the individual preferences of the investor. Young investors usually opt for shares over bonds, because they want to profit from high yields in the long-term. Short-term fluctuations are not as relevant due to a longer investment horizon. Investors who favor regular profits will most likely opt for bonds.