Stocks and bonds are financial assets that can yield a profitable return if they are purchased and sold at the right time. To some extent, they are alternatives for each other, and they both have different characteristics.
Info on Bonds
A bond is essentially an IOU. They can be divided into 2 categories; government bonds and corporate bonds. Intuitively, corporate bonds are issued by publicly traded corporations, such as Apple Inc, whereas government bonds are issued by the government or Central Bank. Rating agencies, such as Standard & Poor’s, provide ratings for a range of different financial assets. Their rating provide more information on the security of the asset, and the likelihood that the issuer will default. Bonds, especially those which have been issued by stable governments, are generally seen as very safe investments. However, the returns they generate are usually limited.
Changes in ratings e.g. a company’s bonds downgraded from AAA to BBB, will result in a fall in the value of the bond. This presents investors with an opportunity (they will make a profit if they went short on the bond before the rating was downgraded.)
Other than selling them for capital gains, you can generate revenue from owning a bond in other ways. A bond has a maturity date, and on that date, the firm or government who issued it pays the owner a coupon (this is the equivalent of a dividend.)
Info on Stocks
An investor can purchase a share in a publicly traded company, giving him/her a vote at the firm’s annual general meeting (AGM) and a share of the profits (a dividend.)
The average finance enthusiast will probably know a lot more about stocks than bonds. However, there are a few common misconceptions regarding stocks. For example, although owning a stock can result in a dividend payment, not all corporations pay out dividends regularly (they may not generate a profit, or, they may choose to use profits in another way e.g. reinvesting.)
Stocks are typically riskier viewed as risky investments, and they tend to offer higher financial rewards for their ownership (in comparison to more stable assets.) The asset which suits you best is dependent on your circumstances and financial goals.