The Difference Between Stocks and Bonds (Video)

The Difference Between Stocks and Bonds (Video)

Both stocks and bonds are common forms of investments used to generate cash flow. It’s important to understand their differences when implementing investment strategies. The appropriate use of each is unique to an investor’s risk tolerance, financial goals and time horizon.

1. Stocks

As an investor, you can purchase stocks of a publicly traded company, which makes you a shareholder. As a shareholder, the value of your shares will change based on the value of the company and other market forces.

Compared to bonds, and taking into consideration historical performance, stocks are a riskier form of investment because your return is based on the market and the company’s performance, neither of which you can control. However, stocks offer more opportunity for growth and potentially higher returns.

2. Bonds

When an investor purchases corporate bonds, the company is then in debt to the investor. A bond is used when the company wants to borrow from the general public to expand the company.

Bond certificate holders receive the principal amount of the bond when it matures. The investment component of a bond is the interest that is accrued and paid to the investor over the course of the bond’s life.

Historically, compared to stocks, bonds offer greater stability, which is a lower-risk investment. Credit quality of the bond is an important factor when considering risk tolerance and laddering your bond portfolio protects you against market yield curves. However, bonds typically offer lower potential for returns.

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D'Angelo Johnson

D'Angelo Johnson

VP, Private Banking Manager (602) 224-2023 Email D'Angelo

D’Angelo is Vice President, Private Banking Manager at Bankers Trust, with more than 18 years of experience in the financial services industry. He began his career as a realtor and financial independent contractor, eventually joining Bankers Trust in 2007 as a consumer services representative. D’Angelo became a relationship banker in 2008, then joined the bank’s Financial Intelligence team in 2014 as a certified BSA/AML professional, where he helped protect the bank and its customers against fraud. D’Angelo has been in his current role since 2017. Outside of work, D’Angelo serves on several boards in the Phoenix area and is a past board member of several nonprofits in the Greater Des Moines area.

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