Stocks and Bonds

October 16, 2013

Do you know the difference between a stock and a bond? A key difference between them is that stocks make no promises about dividends or returns. A company's dividend may be as regular as a heartbeat, but the company is under no obligations to pay it. And while the company stock might be very profitable at one time, it could also go down and cause a loss unexpectedly. When a company issues a bond, the company promises to pay back your principal (the face value) plus interest. If you buy the bond and hold it to maturity, in most cases you know exactly how much you are going to get back. That is why bonds are also known as "fixed income investments." Bonds are rated and some bonds are not backed by anything, so you need to be aware of the risk you taking with your investments. Bond values decline as interest rates rise so if you need to redeem the bond prior to maturity, it may be worth less than what you paid.

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