| Stocks are equity investments. What does equity | | | | first to receive any assets (their investment) |
| mean? Equity is a term that simply means | | | | from the dissolution of a company, should the |
| ownership or having a stake in something. | | | | company go bankrupt. In this sense, bonds are |
| Therefore, this would mean that one share of a | | | | safer investments than stocks, particularly |
| stock would give you ownership in the corporation | | | | common stocks (as mentioned in my previous |
| that issued that stock. You now own a | | | | blog that common stock holders have last |
| percentage of that company. | | | | priority). Meanwhile, this also means that bonds do |
| Bonds, also known as fixed income investments | | | | not receive a share in the wealth generated by a |
| or debt securities, are a form of debt in which an | | | | fast-growing company. Safer investments mean |
| investor loans money to an entity, such as | | | | less risk, which means their potential of receiving |
| corporate or governmental. A bond is like an | | | | high profits are lower compared to investments |
| "IOU" (I owe you) from the issuer (borrower) to | | | | that are riskier. In other words, investments with |
| the bondholder (lender), which indicates that the | | | | higher risk have the potential for greater rewards. |
| issuer will repay the bondholder over time for the | | | | Why else would anyone take on risky |
| loan, with a fixed interest rate. Unlike stocks, | | | | investments, right? |
| bonds are not only issued by corporations, as | | | | So, now that you know the differences, which |
| they are also issued by the federal government, | | | | one should YOU choose? This is where the issue |
| state government, and municipal government. In | | | | of risk VS. reward comes into battle. Do you to |
| summary, bonds allow people to invest their | | | | be a bondholder and have a better chance of |
| money as a loan to an entity in return for a | | | | getting a piece of your investment back if a |
| stable rate of interest. The main categories of | | | | company goes bankrupt? (Common stockholders |
| bonds are corporate bonds, municipal bonds | | | | usually lose their entire investment after the |
| (which are issued by cities), and U.S. Treasury | | | | company pays back all their creditors, which |
| bonds, notes and bills. Simply think of bonds as | | | | includes bondholders and preferred stockholders.) |
| loans. | | | | OR are you willing to take on that risk in hopes of |
| Another difference between stocks and bonds is | | | | receiving high profits and nice rewards? |
| that the owner of a corporate bond is among the | | | | |