Bonds are created by an institution to raise money for a project. When you buy a bond, you’re lending money to the institution at a fixed interest rate for a set period of time. Bonds are low-risk investments. If the interest rate declines during the time you have the bond, you still get back whatever the rate was when you purchased it. But you have to wait for your set period of time before you can cash out, even if you need that money now.
When you buy a stock, you’re actually buying a small piece of the whole company, not lending it money. You can hold onto the stock or sell it whenever you want. It’s riskier because if rates have declined when you sell, you’ve lost money. But, the opportunity to make money is way higher if you sell when rates are high.
According to thestreet.com, for nearly 100 years, bonds averaged a 6% return while stocks averaged 10%.
