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What is the difference between investing in stocks and bonds?

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Bonds and stocks are very similar securities in many respects. For example, market value of both are determined by their expected future cash flows; and both show price sensitivity- some more, some less- to a set of common market factors. At the same time, some may even go further and state that when it comes to portfolio investing details, there is really no difference between the two either. What do you think? Do you think that investing in financial assets is just investing and it does not matter whether we are talking about bond portfolios or stock portfolios? What advice would you give to clients?

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Definition of Bond
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A bond is a fixed interest financial asset issued by governments, companies, banks, public
utilities and other large entities. Bonds pay the bearer a fixed amount a specified end date. A discount bond pays the bearer only at the ending date, while a coupon bond pays the bearer a fixed amount over a specified interval (month, year, etc.) as well as paying a fixed amount at the end date.

Definition of Stock
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A share ...

Solution Summary

In a 305 word solution, the response clearly defines each of the investments and presents examples of their uses.

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Discussion questions regarding corporate stock and corporate bonds including tax differences and diversification.

Short and precise answers will be more suitable for comparison

1) What are the primary differences between investments in corporate stock versus corporate bond?
2) Since bonds pay interest, does that imply the individual's risk is less for investing in bonds rather than stock?
3) What are the mechanics of purchasing bonds? May the investor leave the bonds with his or her broker?
4) Since a bond has a maturity date, does that imply the investor holds the bond to maturity?
5) Can the investor expect to earn higher returns on a firm's bonds than on its stock?
6) Are high -yield securities an acceptable investment for an investment club or its members?
7) From a tax perspective. Which should an investor acquire for a retirement account: a firm stock or its bonds?
8) If an individual owns stock and acquires bonds issued by the same company, does the purchase diversify the investor's portfolio?
9) How does an individual construct a diversified bond portfolio? How can an investor uses bonds to help diversity the total portfolio?

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