- Stocks are sold in shares and provide the investor with an ownership stake in a company. As such, you have the right to vote and can buy or sell shares at any time and have more long-term growth potential than bonds.
- Corporations, municipalities and the federal government sell bonds to raise funds without giving up any portion of ownership, so they are essentially loans.
- Traditionally, bonds are the smarter investment when interest rates are low. Stocks are continually traded and perform well during bull markets.
- Bonds pay interest yearly and return principal at maturity, making them advantageous to retirees. However, cashing in a bond before term can reduce its value, particularly when rates are higher than the rate of the bond. Stocks pay dividends as deemed appropriate by the shareholders and their value increases and decreases daily with market fluctuations.
- Both investments have risks and vary with the stability of companies, so it is important to research the company you are investing in.
- Taxes are based on money you receive from your investment, so you will be taxed for interest payments or any dividends you receive each year.
- Generally, stocks are sold to finance equity and bonds are used to finance debt, although there are some exceptions.
