Wealth Library

TLDR A bond is like borrowing money from someone and promising to pay it back later with interest. It's a debt security that allows an investor to lend money to an organization or government in exchange for regular interest payments and the return of principal at maturity. What Is a Bond and What Is Their Purpose? Governments and corporations issue bonds when they need to raise money. You are basically lending the issuer money when you buy a bond. In return, they agree to pay you the whole amount of the loan on a specific date as well as regular interest payments (usually twice a year) during the repayment period. Bonds issued by firms do not provide ownership rights, in contrast to stocks . You won't necessarily benefit from the business's development, but you won't notice as much of an impact when the company isn't doing as well either, as long as the company still has the ability to make loan payments on time and doesn't default. This means that if you includ...

TLDR Stocks are simply the ownership shares in a company. This represents a percentage the stockholder owns of a company and how much they share in the company's profit/loss. IMAGE:Drew Angerer/Getty Images What are they and what is their purpose? Stocks are a type of tradeable security that provides stockholders with a share of ownership in their chosen company. Stocks should be viewed as actual ownership of a business. All of the business' gains and losses are reflected in the stock price. The stock market is where these assets predominantly change hands. Owning these types of assets is unique to other investments because the public can readily access them and the market provides a reasonably high level of liquidity.  How are profits distributed? The two major ways a company redistributes profits to shareholders are through dividends and stock buybacks. Dividends are cash handed back to the shareholders based on their ownership of the company, not requiring them to sell any o...