Stocks vs. Bonds

Investing involves two basic actions: Acquiring partial ownership of a business through stocks or lending money and earning interest through bonds. Stocks and bonds each play a different role in a portfolio.

Stocks (Equity Ownership): Buying stock gives you partial ownership of a company. You become vested in the company’s future profits and losses.

• Stocks can increase in value over time through price appreciation; some companies may also pay dividends.
• Stock prices can change with daily news, market sentiment, and economic conditions. In the short term, stock returns can be unpredictable. Stock prices can fall significantly if a company fails.

Bonds (Lending Money): Buying a bond means lending money to a government or company for a fixed period in exchange for interest.

• When investing, your primary goals are to grow your money and maintain stability. Bonds offer stability by paying regular interest and returning the original amount at maturity. Bonds could be safer than stocks but usually offer lower returns.

A well-diversified portfolio typically includes both bonds and stocks. Younger investors can take greater risks because time is on their side and have a higher allocation to stocks compared to older investors.