Approximately six million people became dollar millionaires at the end of the last century, with total assets of $17 trillion, largely thanks to the stock market boom in the 1990s. That was a lot of money to invest profitably or to place in a safe place. It was also a very strong incentive for many more of us to want to make seemingly easy fortunes.

 Many of us, then, became investors and put our faith (and assets) in the steady long-term growth of the capitalist economies. Instead, in the recent global financial tumble, markets lost $30 trillion. Sadly we have been lured into the investment web and have become much more vulnerable to its vicissitudes.

 The individual has so many investment choices that the inexperienced, untrained mind would naturally boggle. She can invest globally or locally, in government or corporate securities, in stocks or bonds or derivatives, in commodities, or in a wide variety of funds.

 Since we already considered the basic choices for a company that seeks to raise money in the markets with stocks or bonds, let's look at that same choice from the perspective of an investor. A simple comparison between the two choices can only be made under the assumption that she has already chosen a specific company and can acquire either type of security.

 All else being equal, a bondholder will receive her money before the stockholder in the event of a company collapse. On the other hand, when a company is very profitable, the stockholder should earn more.

 Once the securities are acquired in the primary market, investors can sell them in the secondary markets, in the stock exchanges. (Most investors actually transact all their purchases and sales in the secondary markets.)

 Ideally, stockholders can hold onto their stocks and receive dividend payments as the company thrives and grows. Or they can sell their shares as the price rises, reflecting the success of, or the hopes for, the company. Today many company shares are trading at lower and declining prices. Therefore investors face the choice of selling at a loss, or holding on in the hope that the markets will eventually return to growth.

 A corporate bondholder can hold a bond until its maturity and receive interest payments, or sell it before maturity on the open market.

 Bonds are usually sold in denominations of $1,000 or $10,000 and can be bought at less than face value in the open market. When the bond matures, the profit made includes the difference between purchase price and face value, and the interest payments received over time.

 Bonds are affected by other interest rates in the market. When interest rates decline, as they are doing now in most struggling economies, the purchase price for bonds rises. Since the interest paid on GICs, for example, or other bank deposits, is low, the corporate bond return (called "yield") might seem attractive. That is why some experts are currently recommending corporate bonds.

 There are two key risks in corporate bonds - the company goes out of business and the bond is worthless, or interest rates rise and the bond price declines on the open market. Corporate bonds are generally more risky than government bonds and therefore often pay higher returns.

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 Companies can only stay in business as long as they're profitable, while one would like to believe that governments always have access to funding. Whether government bonds are always reliable or not, the investor's choices are rarely as straightforward as "stocks or bonds."

 Daphna Levit was an international equity analyst at Merrill Lynch in Tokyo, vice-president at Morgan Stanley in London and senior vice-president at Barings Securities in New York.

   When she retired from the active markets, she went on to teach finance and economics to MBA students. She now lives near Lunenburg.

posted on 01/27/09