What Is The Difference Between Stocks and Bonds?

When it comes to investing your retirement
savings, you have two main options: stocks and bonds. Stocks are small portions or shares of a company,
also known as “annuities.” For example, you could buy a share of Lululemon. Congratulations! You now actually own a piece of the company. The company then uses your investment to help
its growth. As the company does well, your stock may increase
in value. This means you can potentially sell it for
more than your original purchase price down the line. If the company goes under, your money goes
with it. Bonds are actually a form of long-term debt
issued by either a company or government. When you buy a bond, you’re basically buying
a debt and loaning a company or government money. Growth comes from the interest the seller
agrees to pay you at a fixed rate and schedule. The borrower must repay the entire loan by
a certain date, known as a maturity date. Since you know the interest rate and term
ahead of time, bonds are much more stable and predictable than stocks. However, they tend to yield less return to
investors. So which should you invest in? Most finance professionals advise younger
investors to allocate more funds to stocks, because they have more years before they retire. But bonds are a surer thing and have the added
benefit of an exact payoff time frame.

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