Stocks Vs Bonds

What is the difference between investing in stocks and bonds? This is one of the most frequently asked questions by new investors. There are many differences between these two types of investments, which are listed as follows:

Stocks versus Bonds:

1) Investing in stocks is considered more risky than investing in bonds.

2) While buying stock makes you part owner of the corporation, buying bonds makes you a creditor or lender to the issuers.

3) Traditionally speaking, bonds are safer than stocks because they pay attractive interest rates and have lower volatility. A 20-year treasury bond will yield constant dividend every 6 months, for 20 years.

4) With bonds, unlike stocks, you will get a fixed return on your investment. If you hold common stocks, you will profit directly if your chosen company has good profitability performance because you can get a higher dividend payment.

5) In case of a bankruptcy, shareholders are the first to bear losses. Creditors, including bond-holders, are the next.

6) With bonds, the company's success or failure will not play any part in your returns. Bondholders do not share in a company's profits.

* Next: Basic Investor Guide to Stocks and Bonds