What are stocks and bonds in simple terms?
A stock market is a place where investors go to trade equity securities (e.g., shares) issued by corporations. The bond market is where investors go to buy and sell debt securities issued by corporations or governments.
A stock market is a place where investors go to trade equity securities (e.g., shares) issued by corporations. The bond market is where investors go to buy and sell debt securities issued by corporations or governments.
The biggest difference between stocks and bonds is that with stocks, you own a small portion of a company, whereas with bonds, you loan a company or government money. Another difference is how they make money: stocks must grow in resale value, while bonds pay fixed interest over time.
A stock is a share in the ownership of a company. A bond is an agreement to lend money to a company for a certain amount of time. Companies sell securities to people to get the money they need to grow.
A stock, also known as equity, is a security that represents the ownership of a fraction of the issuing corporation. Units of stock are called "shares" which entitles the owner to a proportion of the corporation's assets and profits equal to how much stock they own.
A bond is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. In exchange for the capital, the company pays an interest coupon, which is the annual interest rate paid on a bond expressed as a percentage of the face value.
The people who purchase a bond receive interest payments during the bond's term (or for as long as they hold the bond) at the bond's stated interest rate. When the bond matures (the term of the bond expires), the company pays back the bondholder the bond's face value.
Bonds are an investment product where you agree to lend your money to a government or company at an agreed interest rate for a certain amount of time. In return, the government or company agrees to pay you interest for a certain amount of time in addition to the original face value of the bond.
In general, the role of stocks is to provide long-term growth potential and the role of bonds is to provide an income stream. The question is how these qualities fit into your investment strategy.
For example, a $10,000 bond with a 10-year maturity date and a coupon rate of 5% would pay $500 a year for a decade, after which the original $10,000 face value of the bond is paid back to the investor. Like any investment, bonds have pros and cons.
How do you explain stocks to kids?
Start by explaining the basics of the stock market. You can explain that the stock market is a place where companies sell shares of ownership to investors, and that investors can buy and sell these shares in order to make money. Use simple examples and real-life scenarios to illustrate how the stock market works.
Let your child pick out a stock and either buy a few shares for them or set up a model portfolio so they can make some trades on their own. As they get older, encourage your kids to invest their money in a mix of stocks, bonds, and a savings account that you can help manage while they take the lead.
A bond is a loan that the bond purchaser, or bondholder, makes to the bond issuer. Governments, corporations and municipalities issue bonds when they need capital. An investor who buys a government bond is lending the government money. If an investor buys a corporate bond, the investor is lending the corporation money.
Stocks are a type of security that gives stockholders a share of ownership in a company. Companies sell shares typically to gain additional money to grow the company. This is called the initial public offering (IPO). After the IPO, stockholders can resell shares on the stock market.
Stocks represent an individual's stake in a company, like a pastry piece from a chocolate cake. This security is liquid. In other words, the trader can sell and encash them in short durations. Examples include Amazon and Apple stocks.
Short selling is—in short—when you bet against a stock. You first borrow shares of stock from a lender, sell the borrowed stock, and then buy back the shares at a lower price assuming your speculation is correct. You then pocket the difference between the sale of the borrowed shares and the repurchase at a lower price.
The experience created a very special bond between us. Belinda was having difficulty bonding with the baby. They all bonded while writing graffiti together. What had bonded them instantly and so completely was their similar background.
In return for buying the bonds, the investor – or bondholder– receives periodic interest payments known as coupons. The coupon payments, which may be made quarterly, twice yearly or annually, are expected to provide regular, predictable income to the investor..
Bonds are a type of fixed-income investment. You can make money on a bond from interest payments and by selling it for more than you paid. You can lose money on a bond if you sell it for less than you paid or the issuer defaults on their payments.
You can buy inflation-protected Series I bonds in a child's name. The amount you can purchase electronically for anyone, including a child, is capped at $10,000 per person per calendar year. The interest earned on I bonds is subject to federal taxes in most cases, but not state or local taxes.
What is the difference between a bond and a stock?
Stocks offer ownership and dividends, volatile short-term but driven by long-term earnings growth. Bonds provide stable income, crucial for wealth protection, especially as financial goals approach, balancing diversified portfolios.
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
I bonds issued from Nov. 1, 2023, to April 30, 2024, have a composite rate of 5.27%. That includes a 1.30% fixed rate and a 1.97% inflation rate. Because I bonds are fully backed by the U.S. government, they are considered a relatively safe investment.
Stocks offer an opportunity for higher long-term returns compared with bonds but come with greater risk. Bonds are generally more stable than stocks but have provided lower long-term returns.
There are many examples of stocks. One widely bought and sold stock is Amazon. Other popular stocks include Apple, Tesla, Facebook, and Microsoft.
