What is the difference between stocks and bonds

The time-period can vary anywhere from one day to ten plus years, and the interest earned will vary bond to bond. Bonds generate returns through periodic interest payments and with the principal amount returned to the lender at the end of the period. The greatest difference between stocks and bonds are their risk levels and their return potential. Speaking very generally, stocks have historically offered higher returns than bonds but also come with increased risk.

While you may earn more with stocks, you may also stand to lose more. That said, not all stocks have the same level of risk, and not all bonds are safe from fluctuations. A common misconception with stocks is that they all have equal levels of risk and that no other vehicle is riskier. And while generally speaking, stocks experience more market variance, high yield and emerging market bonds can carry more risk than some equities.

Too much of anything can become a bad thing. Since they each behave differently, a combination of both can provide a more balanced portfolio. Schwab is a registered broker-dealer, and is not affiliated with Jemma Financial Services or any advisor s whose name s appear s on this website. This bracketed language is for use by Schwab Advisor Network members only. Schwab does not review the Jemma Financial Services website s , and makes no representation regarding information contained in the Jemma Financial Services website, which should not be considered to be either a recommendation by Schwab or a solicitation of any offer to purchase or sell any securities.

Knowledge is power. We empower our clients. Get Started Now. What is the Difference between Stocks and Bonds? A well-chosen portfolio of both bonds and shares should stand an investor in good stead throughout the economic cycle. Of course, the two asset classes provide different benefits — bonds deliver a regular income, while shares offer the potential for capital growth.

Before investing in either bonds or shares, it is important to ascertain your tolerance of risk. Do not invest what you cannot afford to lose, and it is a good idea to consult a professional financial adviser for guidance. That means the effect of a default in a bond fund or share price fall in an equity fund is minimised.

If you would like to learn more, keep exploring our other fixed income articles, videos and infographics below. Explore our solutions. This publication is for information and general circulation only. It does not have regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive it.

You should seek advice from a financial adviser. Past performance and any forecasts on the economy, stock or bond market, or economic trends are not necessarily indicative of the future performance. Views expressed are subject to change, and cannot be construed as advice or recommendations. References to specific securities if any are included for the purposes of illustration only.

This publication has not been reviewed by the Monetary Authority of Singapore. The difference between stocks and bonds explained. What about risk? Complementary assets Bonds and stocks can work well together, as part of a well-diversified portfolio. Choosing the right investment Before investing in either bonds or shares, it is important to ascertain your tolerance of risk. Download article. More to read and more to watch. Understanding investment grade and high yield With varying degrees of risk and reward, where on the spectrum will you invest?

How interest rates affect bonds One goes up, the other goes down.