What Are The Differences Between Stocks And Bonds?

What are the differences between stocks and bonds? Stocks are equity; it is the ownership in a company. When you buy a stock you are buying a piece of pie of that company. With a bond you are borrowing money to the company, they are going into debt; they are borrowing money from you at an interest rate.

Stocks are equity; it is the ownership in a company. When you buy a stock you are buying a piece of pie of that company. With a bond you are borrowing money to the company, they are going into debt; they are borrowing money from you at an interest rate. That's how the bond doesn't go up and down with the fortunes of the company. So, it is like if you loaned me $10,000 and I will pay you 6% for five years, and at the end of five years, I will give you $10,000 back too. That's basically what a company is offering as a bond. It is a debt security, not an equity security. They are generally more stable than stocks. They don't have the upside potential of a stock, but it depends on the company. The companies that are real well known and stable like the blue chip companies, those bonds are generally fairly stable. The companies that are having problems, you stand on the risk of losing all of your money in a bond if the company goes under. Best way to buy a bond is through a bond fund. Just like the best way to buy stock is through amutual fund or through an ETF, a lot of money is spread out in different bonds or stocks. That's probably the best piece of advice I can give anybody starting out, because there were more people that lost money in early 2000s by not being diversified. They had all their money is text stocks. There were so many families that were just devastated for that reason. Don't put all your money in the stock market. If you have $100,000 the percentage will vary for everybody, but you've got to really consider how much exposure you want in the stock market. After the allocation, how much of your money do you put in each investment class; like stocks, bonds, real estate, and gold and so on? That's different; the answer is different for everybody depending on how old they are and how much risk they are willing to accept.

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