![]() ![]() Because they’re a debt security, they function as an IOU. For example, supply chain issues and even weather conditions can affect a company’s production and cause stock prices to plummet.īonds are relatively safer. With stocks, the prices can rise and fall for a variety of reasons, including factors outside of the company’s control. RiskĪlthough stocks have greater potential for growth than bonds, they also have much higher levels of risk. The average annual return on bonds is about 5%. By contrast, the typical returns for bonds are significantly lower. Securities and Exchange Commission (SEC), the stock market has provided annual returns of about 10% over the long term. Historically, stocks have higher returns than bonds. Bonds: Key DifferencesĪlthough both stocks and bonds are popular investment options, there are several key differences to be aware of before investing your money. Investors often use bonds to balance out riskier investment options, such as individual stocks, to protect against market volatility.ĭepending on the type of bond, you can buy them through online brokerage accounts, mutual funds, exchange-traded funds (ETFs) or directly through the government or government agency. If you hold onto the bond until its maturity date, you also get back the entire principal, so there’s little risk involved. They’re backed by the government, so they are a relatively safe investment option.īy investing in bonds, you can get a predictable and reliable stream of income through interest payments. Department of the Treasury on behalf of the federal government. Treasury: Treasury bonds are issued by the U.S.Municipal: Municipal bonds are issued by states, cities and counties.Corporate: Corporate bonds are issued by private and public companies.In exchange, the issuer promises to pay you a rate of interest on top of the bond’s principal. In essence, you are lending money to the issuer. With bonds, the company or organization issuing the bond acts as a borrower and raises money from investors to fund projects or expansion efforts. While stocks are equities, bonds are known as debt securities. Stock prices can drop significantly in a short time, so it’s possible to lose money investing in stocks. They offer the greatest potential for growth, but they also come with significant risk. Stocks are sold on stock exchanges, such as the Nasdaq or the New York Stock Exchange. And if a company goes bankrupt and its assets are liquidated, preferred stockholders get priority. Preferred: With preferred stocks, shareholders don’t have voting rights, but they receive dividend payments before common stock shareholders do.Owning common stock entitles you to receive dividends and vote at shareholder meetings. Common: Common stocks represent ownership of a company.You could also earn dividends if the company distributes a portion of its earnings to stockholders. For example, you can buy stocks and become a shareholder of major companies like Apple ( AAPL), Tesla ( TSLA) or Intel ( INTC).īy buying stocks, you can potentially grow your money through capital appreciation, meaning the stock’s price increases. Also known as equities, stocks are a type of security that gives you a share of ownership in a specific company. ![]() Stocks are one of the best-known investment options. ![]()
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