Bonds vs Stocks - Top 11 Differences between Bonds and Stocks

Vikas Yadav. Wednesday, September 1, 2021.

Whenever you invest your money, it is often advised to diversify your investments in stocks and bonds. But do you know-how stocks and bonds are different from each other?

For any investor, it is crucial to know the difference between bonds and stocks. Only then you may make wise decisions about where and how to invest your money?

In this article, you will get to see a clear picture of bonds vs stocks under the following subtopics.

Content:

  • What are Stocks and Bonds?

  • What are Stocks?

  • What are Bonds in the Share Market?

  • Difference between Bonds and Shares.

What are Stocks and Bonds?

Bonds and stocks are often clubbed together when it comes to investing. But they are quite different in terms of behavior, returns, and risks from an investor's perspective. Both these investments come with their set of pros and cons.

Let’s get into the nitty-gritty of each instrument and decide which is a better option for you!

What are Stocks?

Stocks are a set of shares of a particular company. Stocks represent partial ownership in a company. When you buy a share, you get to own some part of the company based upon the number of shares you have purchased.

Since you own a share in the company, you are entitled to receive your share of the company’s profits. But if the company makes losses, you bear the loss too.

To help you understand stocks better, we have carefully made the below list which explains the characteristics of stocks:

  • Profitability: Investing in shares can fetch you really high profits if chosen the right shares.

  • Ownership Rights: A shareholder is a part-owner of the company, depending upon the number of shares he owns, giving them the right to vote in managerial decisions.

  • Risk Factor: The risk here is on the investment you make, as the price of the shares keeps fluctuating at the market level. It also depends on how good or bad the company is performing. You can end up with high earnings or can face huge losses.

  • Returns: The return on investment in stocks purely depends on the performance of the company. Also, the company is not obligated to pay its investors any return in case of bankruptcy.

What are Bonds in the Share Market?

Bonds are fixed-income investments, they are considered as a loan issued to companies, organizations, and even national governments by people like you and me.

To understand bonds better, read the list below, which shows the characteristics of bonds.

  • Interest Payouts: As mentioned above, the investor receives a fixed interest rate on the investment for a specified period of time in bonds. Bonds are also guaranteed return investments.

  • Principal Repayment: The principal amount upon which the interest was paid will be returned to the investor once the bond matures.

  • Risk Factor: In investment, the only risk you have is of losses. Bonds are very low at risk in comparison to stocks.

  • Returns: The returns are fixed in bonds. Everything in bonds is pre-defined: the time period, the principal amount, and the interest rate. The company is obligated to pay you even if they are bankrupt. The only drawback is that you don’t have a chance to earn high profits as you can do in stocks.

You may also learn about different types of bonds by clicking here. I hope you are clear with what stocks and bonds are! 

For a better understanding, read the difference between bonds and shares in the below section.

Difference between Bonds and Shares.

The below table shows bonds vs stocks in various factors; give it a good read to understand which is a better investment option for you.

Factors

Stocks

Bonds

Meaning

Stock is nothing but a part of the ownership of the company issued to the general public to raise capital. So when you buy stocks of a company, you become the owner of that company proportional to the value of stocks.

Bonds are fixed-income investments and are considered a loan issued to companies, organizations, and even national governments by people like you and me.

Issuers

Corporates

Government institutions, financial institutions, companies, etc.

Status

Stockholders are the part owners of the company or firm

Holders are the lenders to the firm

Risk Levels

High

Relatively low

Form of Return

Capital Gain (Bonus and Dividend), which are not guaranteed

Interest, as a fixed payment over the time period and principal amount, once the bond matures

Additional benefit

Shareholders get voting rights

Preference during liquidation and repayment

Market

Centralized/Stock Market

Bond Market/Over the Counter

Type of investment

Equity

Debt

Time of maturity

Depends on investors

Fixed at the time of purchase

Owners

Stockholders

Bondholders

Participants

Investors, speculators, institutional investors

Market maker, floor trader, floor broker

Disclaimer: The above article is written for educational purposes, and the companies’ data mentioned in the article may change with respect to time.

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Author : Vikas Yadav
Vikas Yadav

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