What is the difference between a stock and a bond?

June 04, 2014

A key difference between a stock and a bond is that stocks make no promises about dividends or returns. A company's dividend may come regularly, but the company is under no obligation 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, however, the company guarantees 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; this is why bonds are also known as "fixed-income" investments. Be aware though, that the guarantee from the company is only as good as the company's ability to pay you back. If the company is no longer around and they have gone bankrupt, the likelihood of getting your money back is low; just because a bond is considered fixed income does not mean it is a safe investment.

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