STOCKS & BONDS

STOCKS

As mentioned in the previous post, stocks represent ownership in a company. When an investor buys a stock, they become a shareholder and are entitled to a portion of the company's profits and assets.

BONDS

Bonds are debt securities that represent a loan made by an investor to a borrower, usually a corporation or government. In exchange for lending money, the borrower agrees to pay interest (coupon) to the bondholder, and to repay the bond's face value (principal) when the bond matures.

Bonds are considered to be less risky than stocks, as the borrower is obligated to make regular interest payments and repay the principal at maturity, regardless of the company's financial performance. However, bond prices can be affected by changes in interest rates, credit risk, and inflation.

Investors can purchase bonds directly from issuers, or through intermediaries such as banks and brokerage firms. Bonds can also be traded on secondary markets, just like stocks.

Bonds are an important component of a diversified investment portfolio, as they can provide a source of steady income and help to manage portfolio risk. However, it is important to understand the terms and risks associated with each bond before investing in it.