Question

The bond market and stock market are two important types of financial markets. Which market would you prefer to use for your investments and why? In your answer, highlight at least three advantages and three disadvantages for your choice.

Answer 1

I prefer to invest in stock market.

Advantages:

1) You get a part ownership of the company through stock purchase. In bonds, you don't get ownership of the company. You are a creditor.

2) You get unlimited upside potential unlike bonds where you get fixed returns.

3) You can get dividends (part of profits) if you are a stockholder

Disadvantages:

1) The risk of losing money is high

2) Volatility of the market price of the stock could be high

3) Liquidity could be a concern if you are invested for the short term and you need the money but the current market price is not high enough for you to sell