Stocks and bonds are two investment instrument products that are popular with many people. Although both are choices in investing, both have quite fundamental differences. Both also have their own advantages and disadvantages, depending on your conditions and needs.

Investing itself is one of the best ways to protect your money from inflation. Because, saving alone will not bring significant benefits. Investing money in the form of investments will provide additional benefits, and can even be used as passive income. If you are interested in starting investing immediately and want to know more about stocks and bonds, see the following review of the differences between stocks and bonds.

Understanding Stocks and Bonds

The most fundamental difference between stocks and bonds lies in their definitions. Broadly speaking, stocks are assets owned by a company, while bonds are debt instruments that can be purchased. Therefore, when you buy stocks, it means that you have a certain percentage of ownership of the company. This makes you an investor.

While bonds make you the party lending money, later the debt will be repaid along with interest or coupons. Bonds also have a clear maturity date, so the amount of money you spend is guaranteed to be repaid. In addition, shares can only be issued by a Public Company (Tbk.), while bonds can be issued by any company and government agency.

Some examples of famous stock investments that you may be familiar with, such as PT Sampoerna shares, can be purchased through the stock market or online. Similar to shares, bonds can also be easily obtained through banks or online applications. There are several types of shares and bonds that you should know first before buying.

Types of Stocks and Bonds

Stocks are divided into two types, namely common stock and preferred stock. Each has its own advantages and disadvantages. It should also be remembered that the greater the profit obtained, the higher the risk that needs to be faced.

Common stockholders have voting rights and can express opinions regarding the company's operations. However, common stockholders will only benefit if the company also makes a profit. In contrast to common stock, preferred stockholders do not have voting rights in the company.

In general, preferred stock has the combined characteristics of common stock and bonds. In the distribution of profits, preferred stockholders will be prioritized and receive dividends based on a previously agreed level.

For bonds, there are secured bonds and unsecured bonds. As the name implies, the company issuing this bond will use some of its assets as collateral for debt payments.

If the company fails to pay off the debt, the bondholder has the right to claim the guarantee. Examples of these bonds are bonds with guarantees, property guarantees, securities guarantees, and equipment guarantees. While unsecured bonds are issued on the basis of trust without any guarantee or warranty.

Some examples include government bonds (debenture bonds) and subordinate bonds. Bonds can also be recategorized based on the aspect of transfer, interest value, issuer, and maturity.

Stock Index

In the world of stocks, there is something called a stock index. A stock index is the average price of all stock prices that have been listed on the stock exchange. In Indonesia itself, there are several types of stock indexes, such as IHSG (Composite Stock Price Index), Nikkei, and Hangseng. One of the investment applications, GICTrade also has a stock trading feature. Specifically for GICTrade, you can trade Nikkei and Hangseng stocks.

Risks and Benefits

Of course you want to make a safe investment and get as much profit as possible. However, it all depends on what type of investment you take. Another difference between stocks and bonds is the risk and profit obtained. In terms of risk, stocks are a more challenging type of investment because the profit obtained really depends on the company's profit.

Therefore, you must think about the best strategy and consider the company's potential before buying stocks. Although the risk borne tends to be high, you can also reap high profits if the company is successful. So, when you buy shares of a company that has high profits, you also get big profits according to the size of the shares owned.

Moreover, stock prices are also affected by micro and macro economic conditions. There are many factors that cannot be controlled, so stock prices can change every day. The state of the country's economy is also one of the main factors in changes in stock prices.

Unlike stocks, bonds are not volatile. This means that the profit obtained will always be the same every month. However, the amount of profit obtained is also influenced by inflation and the interest you get. The profit or loss of a company or government agency is not a factor in bond profits because it is a debt. Bondholders also have priority in payments.

From here, it can be concluded that stocks are high risk and high return, suitable for those of you who are confident in investing. While for beginners, it is recommended to buy bonds because of their low risk and low return nature.

Time period

If you want an investment that has an unlimited time period, then stocks are the right choice for you. As long as the company is still running, you still have the authority and rights to profits as a shareholder. On the other hand, bonds, which are debt instruments, have a limited time period. This time period is the due date for the debt to be paid by the company or government agency.

This time period will guarantee bondholders to get stable profits. If the company goes bankrupt or has financial problems, bondholders do not need to worry about experiencing losses. However, of course bondholders do not have the right to payment forever because there is a due date.

For shareholders, profits will continue to flow as long as the company does not go bankrupt and the company makes a profit. Therefore, stocks are an option that you can consider if you are looking for a long-term investment. Bonds are suitable if you want to get involved in short-term investments.

Liquidation

In every business, there is always a risk of bankruptcy. No exception in investment, you must also consider what will happen if the stock or bond company suddenly goes bankrupt. For shareholders, bankruptcy of the company indicates a significant loss. The company will only pay the last profit and the shares owned will no longer matter.

Bonds are a safer option in terms of liquidation. Bondholders will be prioritized and will still receive debt payments according to the agreed nominal amount. If the company is unable to pay its debts, the company is still required to pay by selling the remaining assets. If you have a bond with collateral, you also have the right to claim assets such as land and buildings, according to what was agreed at the beginning.

Tax System

Finally, the difference between stocks and bonds can be seen in terms of taxation. Company dividends paid to shareholders are already taxed. As stated in Article 4 paragraph 2 of Income Tax, stock investments are taxed at 0.1% of the gross value of the sales transaction. While the interest from bonds received is issued as an expense and is not taxed.

According to PP 16 of 2009 concerning Income Tax on Bond Interest, it is final, subject to a 15% tax deduction on bond payments when due. If you are more interested in stocks that have been taxed, stocks could be your investment priority.

The six differences between stocks and bonds explained above could be a consideration for those of you who want to start investing or are looking for additional investment products. Whatever your investment choice is, don't forget to keep learning and finding out about information that will be useful for investment success. Trust your investment with an agency or application that has been supervised by the OJK.

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