Economic gain represents the primary motive for the purchase of stock. The gain or return from stock consists of two parts: dividends, the periodic payments made from profits, and appreciation, the capital gain realized from selling a stock for more than its purchase price.
An investor really has only two choices in acquiring the financial assets of a corporation—buying stocks or bonds. As a financial claim against a company, bonds take precedence over all types of stock. Thus, they are a safer investment than stocks, especially in times of deflation (a period when the prices of goods and services are generally falling). Stocks, however, are usually the better investment during periods of inflation (a period when the prices of goods and services are generally rising) because they represent ownership of assets that will probably rise in value as fast as or faster than prices in general. Because the dollar value of bonds is fixed, they cannot serve as a hedge or protection against inflation as do common stocks.
An investor really has only two choices in acquiring the financial assets of a corporation—buying stocks or bonds. As a financial claim against a company, bonds take precedence over all types of stock. Thus, they are a safer investment than stocks, especially in times of deflation (a period when the prices of goods and services are generally falling). Stocks, however, are usually the better investment during periods of inflation (a period when the prices of goods and services are generally rising) because they represent ownership of assets that will probably rise in value as fast as or faster than prices in general. Because the dollar value of bonds is fixed, they cannot serve as a hedge or protection against inflation as do common stocks.
