Monday, March 23, 2009

What’s the Difference between Stocks and Bonds?

Stocks are ownership. When you own stock, you own part of a company. Bonds are “loanership”. You’re loaning money to a business or the government. In other words, a bond is debt.

So, when you buy a bond, you are lending money to a company. When you own a share of stock, you own a part of a company.

Let’s say you own a share of stock in a company that operates an amusement park. The company sells stock because they want to grow the company and they need to get capital, which is the money they can use to invest in growing the company. Now, if you own some of that stock, you own part of the company.