Choosing options for ones investment can be quite an endeavor because of the variety of financial properties out there. There are bonds, stocks, CD’s, money market accounts, mutual funds, savings accounts, and many other options for consideration. However, since the beginning of both of their inception, people often wondered about the differences between Bonds vs. Stocks.
Bonds and Stocks are like comparing a cozy pair of slippers to a pair of high-heeled embellished stilettos. Bonds are often considered the investment options for little old ladies, as they are safe and secure as investors will not lose their principal and are guaranteed a rate of return. Stocks are like the rock-stars of the financial world. There are great highs and great lows, bigger risks with bigger pay offs. The reasons for these differences are as unique as the entities themselves.
Bonds are government issued investment properties that are non-marketable, meaning they cannot be traded.US citizens loan the government money by purchasing these bonds. In return, when these bonds “mature” (meaning the government is ready to pay back this loan) investors get back not only the face value of their original purchase but the compounded interest as well. Since these are federal properties, there are no state or city taxes due on the interest.
Stocks are marketable commodities, when purchased the investor is entitled to ownership in a corporation. The more stocks an investor holds, the bigger the share of the holdings. Public companies are organizations that are financially set up to sell shares and are beholden to their shareholders as far as decision-making is made. The profits made are taxable under “capital gains” and the feds, state, and city can all take their portion and the principal is not guaranteed or insured.
In the comparison of Bonds vs. Stocks the latter has a potential for a higher rate of return. Bonds are a fixed income security and Stocks has no schedule of repayment, thus the bigger the risk, the bigger the payoff. Experts advise a mix of these properties to diversify a portfolio.