If you want to invest 2567, should you choose bonds or stocks? What is the difference?

The current financial market is full of investment options, but many investors are still confused about whether to focus more on bonds or stocks. Both financial instruments have significant advantages and disadvantages. Today, we will compare them clearly so you can make an informed decision.

Bonds vs. Stocks - Basic Differences

Simply put, bonds are loan agreements where the holder(investor) has the right to claim back the principal and receive interest as scheduled. The issuer of bonds(companies or governments) is obligated to make payments according to the contract.

The differences from stocks are:

In terms of returns - Stocks have high profit potential but no guarantee, while bonds are fixed and consistent returns through interest payments.

In terms of risk - Stock volatility is very high, (about 3 times that of bonds), whereas bonds are lower-risk assets because holders have priority in debt repayment over shareholders.

In terms of debt repayment priority - When a company faces financial difficulties, bondholders will be paid before common shareholders.

Main Risks to Understand

Bond investors need to be cautious of five risks:

1. Default risk

If the issuer###of bonds### has weak financial health, they may not have funds to repay investors at maturity.

2. Interest rate risk

If market interest rates rise, your bond###yield will look low in comparison. Additionally, selling before maturity may result in a loss.

( 3. Liquidity risk Bonds do not have a liquid secondary market like stocks. If you need to sell midway, you may have to lower the price.

) 4. Inflation risk Even if you receive interest as per the contract, if inflation exceeds the return, your purchasing power decreases.

5. Reinvestment risk

When bonds mature, you need to find new investment channels. If no good options are available, you may lose potential benefits.

Types of Bonds Available

Bonds are classified by issuer:

• Government bonds - lowest risk as they are guaranteed by the state, but yields are not high.
• State enterprise bonds - still low risk but offer higher returns than government bonds.
• Corporate bonds ###debentures### - risk varies depending on the company; companies must offer higher interest rates to compensate for higher risk.

By interest payment method:

• Regular payments - throughout the holding period, usually paid twice a year.
• Accrued interest - paid once at redemption along with principal.
• No interest payments - bought at a discount below face value; profit comes from the price difference.

By interest rate type:

• Fixed rate - returns do not change during the holding period.
• Floating rate - adjusts according to economic conditions.

Additional Privileges That May Come With

When investing in bonds, you may receive three additional rights:

( Early redemption rights The issuer can buy back the entire amount before maturity. This is bad news for you because it means you have to exit the investment earlier than expected.

) Put option You have the right to sell the bond back to the issuer before maturity under agreed conditions. Good news if the situation becomes unfavorable.

( Conversion rights Some bonds can be converted into common shares of the company at a set price and rate. If conversion prices rise, you can gain additional profit.

How to Invest

Primary Market - Purchase directly from the issuer of bonds through financial institutions. Here, you will get complete information about conditions and rights.

Secondary Market - Known as BEX )Bond Electronic Exchange( in Thailand, where you can buy and sell bonds with other investors. Settlement is )T+2(, meaning payment must be made within 2 business days after the trade. The bonds traded are stored at TSD )Central Securities Depository(.

Example of Return Calculation

Suppose you invest in bonds as follows:

• Face value: 10,000 THB
• Interest rate: 8% per year, paid twice a year
• Holding period: 4 years

Interest payment each time = 10,000 × )8% ÷ 2( = 400 THB

Total over 4 years )8 payments( = 400 × 8 = 3,200 THB

At maturity, you receive = 10,000 + 3,200 = 13,200 THB

Total return = 3,200 THB )31.25% of the original investment(

Benefits of Investing in Bonds

Flexible investment periods - from 1 day up to 20 years, depending on your choice.

Steady cash flow - if you choose bonds that pay interest regularly, you will have a fixed income.

Higher returns than deposits - returns from bonds are usually better than bank savings.

Clearly lower risk than stocks - with priority in debt repayment, risk is reduced.

Sufficient liquidity - besides the primary market, BEX also allows trading.

Who Should Invest in Bonds

Young investors - seeking higher returns and able to tolerate volatility should consider stocks more.

Older investors - who prefer less volatility and need steady cash flow, bonds are suitable.

Balanced investors - combining stocks and bonds )Balanced Portfolio( is the smartest way, providing reasonable returns without exceeding acceptable risk levels.

When Are Bonds a Good Choice in 2024?

During times of high market uncertainty, bonds serve as a good risk hedge. Receiving regular interest provides peace of mind, even if the stock market performs poorly. Additionally, if you believe interest rates will not decrease further, locking in current yields is a good strategy.

But remember, bonds are not perfect. Understanding risks and choosing the right type suited to your profile are key to successful bond investing.

Summary

Bonds are financial instruments with potential, suitable for any investor type—risk managers or those seeking steady additional income. In a world of widespread risk, balancing bonds and stocks is like planting a rich crop for your portfolio.