Stock is just a portion of a company’s ownership that is sold to the general public in order to raise funds. So, when you purchase a company’s stock, you become a proportionate owner of that company.
Whereas Bonds are fixed-income assets that are considered loans granted by individuals like you and me to corporations, organizations, and even national governments.
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
- Quick Summary
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 about 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 |
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:
Quick Summary
- 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 or losses.
- 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.
- 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.
