Finally, you have earned some money to invest in creating wealth. But you should know acquiring money does not matter how difficult it is for you because making a profitable investment decision is more complicated. Thus, in this article, you will learn about the difference between money market and stock market in detail. So that you can understand where you should invest your hard-earned money.
What is Money Market?
Money market means trading with currency, or it’s currency trading. It is a great way to earn fixed money that is more than the initial invested amount. However, it is a short-term marketing technique, and you can invest your money here for one year. Generally, the investment includes short-term loans given to financial corporations and banks. On which they provide interest and principal amount on the maturity.
Some examples are certificates of deposits, repurchase agreements, commercial paper, and banker’s acceptance. You can also buy some of the mutual funds that are allocated to invest in the money market.
In most cases, money market trading happens through banks and brokerage firms. Thus, if you want to trade-in, you need to use your computer or smartphone to access brokerage firm sites.
Short Information About Some Debt Instruments Traded in Money Market
Commercial Papers: Commercial papers are issued mainly by the corporate IOUs. These instruments are unbacked by any collateral, but the company promises to pay a certain amount as interest with the invested principal.
CD Or Certificate Of Deposit: It is issued by the bank where you deposit your fund for the short term and get a fixed percentage of interest.
Us Treasury Bill: US treasury bills, also called the T Bills, and US Treasury issue these instruments. And the public can purchase these instruments for a short time and get interested in principle on the maturity date.
What is Stock Market?
The stock market is part of the capital market, and here you can trade in companies’ stocks. If you have a common stock of the company, you have obtained a fraction percentage ownership in the company. And there, you are entitled to get dividends and ownership rights based on your investment. The company’s stocks do not carry any maturity date because the company was formed to do business for infinite years. If you invest in the stock, you can either earn profit or loss depending upon the market environment. And when you think it is the right time to get your money back, then you can sell holding shares in the stock market and convert those into cash. BSE and NSE are two primary exchanges where you can do stock trading in India.
Difference between Money Market and Stock Market
1. Where An Investor Will Invest
If the investor worries more about losing money, they will prefer to spend their money in the money market. As there are comparatively less risky investment options and also they get a fixed rate of interest. However, if the investor’s goal is to increase wealth by investing money for the long run. In that case, they will move with the stock market, and there are big companies. And their share can touch the sky if the market stays normal, and an investor can earn money.
2. Short Term Vs. Long Term
The money market can be the ideal choice for the investor willing to make short-term investments. And the maximum duration in the money market can be one year, where the investor can get principal money back with interest.
However, if you are a long-term investor willing to make the most out of your investment budget. In that case, you will like to choose the stock market. There you can invest your money approx for 10-15 years and evermore.
3. Risk Level
In the money market, the available investment options are comparatively less risky than the stock market. It is because the investor gets the fixed interest, whereas the stock markers do not know the dividend or profit value in the share market.
4. Investment Duration
If you can invest for up to 1 year, then you should go to the money market. And if you can invest for the long term, suppose ten years or more, then you should go for the stock market. However, in-stock market, you can sell your shares anytime you want.
Let’s take a quick look at the comparison chart to understand the differences between money and stock markets quickly.
|Money Market||Stock Market|
|Meaning||The money market is the market where the investor trades in currency.||The stock market is the marketplace where investors trade in stock shares.|
|Risk level||The money market holds less risk-oriented options. However, it is still risky but less risky than the stock market securities.||The stock market is comparatively riskier than the money market. As the prices of the stocks keep changing from time to time.|
|Duration Time||Here you can invest for up to 1 year||There is no limitation on investing period. Because the stocks do not have a maturity date.|
|Goal Of Investment||It is the investment option for maintaining the wealth of the investor.||If you want to create wealth, then you should look for the stock market.|
|Volatility||Here the volatility level is low compared to the stock market.||The stock market holds more volatility levels than the money market.|
|Examples||Examples of money market instruments are CD or certificates of deposit, commercial papers, and US treasury bills.||Stock shares are an example of stock market securities.|
|Liquidity In Investment||The money market securities are more liquid as they are invested for one year or less period.||The stock market holds some less liquid elements. As when the price of the stocks goes higher, a few people buy those.|
Which One is Better?
Well, it depends on the goal of the investor and what they expect from their investment. And also how much risk they can take to earn sustainable profit. If the investor is interested in less risky options, then the money market is the best option. And if the investor is interested in perilous and profitable options, they should look to the stock market.
So, in this article, we learned about the difference between money market and stock market. I hope you liked this excellent information, and it is essential to know if you have an investment interest. Thus, I hope you have understood some significant differences and have decided where you should go for an ideal investment opportunity.