If you’re new to investing, you’ve probably heard of stocks and bonds, but you might not understand the difference between them. Let’s talk about them!
So stocks and bonds are types of investments, but they work in different ways.
First, let’s talk stocks or shares. Shares represent ownership of a company. When you buy shares, you become a shareholder of that company. You make money with stocks in two main ways. These are dividends, which is your share of a company’s profits and capital gains, which is when you sell shares for more than you bought them.
On the other hand, bonds are a loan to a company or even the government. That’s right, you can lend money to the government! When you buy a bond, you’re lending money in exchange for regular interest payments and the return of your principal investment when the bond matures.
Bonds are typically considered more stable than stocks because you have a fixed amount that you’ll be getting at regular intervals, however, stocks have the potential to earn you large gains if you sell at the right time.
So, which one should you invest in? Well, most investors would say to do both! Diversifying your portfolio is key to weathering any financial storms that may come your way. Stocks and bonds serve different purposes, but they can both be used to build a strong investment portfolio.
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