Stocks & Bonds

Stocks are shares you own

Stocks are equity purchases that give you an ownership stake in a corporation or group of companies. Their value grows or decreases according to the organization's financial performance.

You can receive money either through dividends (a cash percentage of profits paid at intervals determined by the company's Board of Directors) or selling the stock.

"Blue chip" stocks from well-established companies offer reliable expectations of paying dividends; less established, smaller capitalized (small cap) companies may show greater potential, but have no track record of consistent earnings. Generally, the higher the potential return the higher the risk.

Bonds are loans you've made

Bonds are different; there's no ownership involved. They're actually loans to a corporation or government needing to raise funds without having to surrender ownership. Like a term deposit, bonds come with a fixed rate of return over a specified period, yet can still be subject to the risk of not being repaid.

Unlike stocks, bonds have a defined term, when the bond or loan is redeemed. Stocks can be held indefinitely.

Government-backed bonds are usually deemed "safe" investments, as are corporate bonds from large financial firms, industrial corporations, public utilities and transportation companies. Sometimes bond markets rise when stock markets fall, but generally they are less affected by market volatility.

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