Stock Vs Bond

Often the lay person who has a limited understanding of investing will lump stocks and bonds together when talking about investing in markets. While they do share some similarities, there are also significant differences one needs to be aware of, such as how the investment works, the outside forces that influence value, liquidity, and the markets where they are traded. It is also important to understand rates of return, so I shall include multiple examples using a stock with and without a dividend component.
Stocks are probably the most easily understood by the novice investor and are a market that is accessible by almost anyone. There are dozens of online brokerage services that make investing in stocks easy and convenient. To put it simply, a stock is also called a “share” because it is a fractional ownership in a company. It is a claim against the company’s assets. So what does this fractional ownership get you? Well according to Investopedia you get, “one vote per share to elect the board of directors at annual meetings is the extent to which you have a say in the …show more content…
A bond is an actual loan to the company, government municipality or federal agency. Bonds promise to pay a certain amount of interest when it matures. According to Chizoba Morah at Investopedia, “Bond prices are affected by changing interest rates and credit ratings.”(Morah, C. p.3) Usually, a bond is considered a long term investment and is held until maturity, which can be five years, ten years or longer. But occasionally an investor may want or need to liquidate early for cash. To do so the investor must make what is called an “Over the Counter” trade. Bonds are not traded on open exchanges for a variety of reasons. The OTC market is a decentralized market, without a central physical location where participants trade with one another through telephone, e-mail, and proprietary electronic trading systems.(Investopedia Staff p.