Money guide · Investing basics, fees, and risk
Stocks vs. bonds: ownership, lending, and risk
Compare stock and bond returns, risks, payment structures, and the role each can play in a portfolio.
How it works
A stock’s value depends on business results and what investors will pay, while dividends are not guaranteed. A bond has contractual payment terms, but credit risk and market-price changes still matter. Bond prices can react to interest rates, and inflation can erode fixed payments. A bond fund differs from holding one bond to its maturity.
A worked example
A hypothetical $1,000 bond paying a 4% annual coupon produces $40 annually under its terms if payments are made. If market prices drop to $950, selling then creates a different outcome from waiting for maturity. A $1,000 stock holding may pay no dividend and can rise or fall substantially. These examples describe mechanisms, not expected performance.
What to compare
Compare issuer quality, maturity, interest-rate sensitivity, diversification, and costs for bonds. For stocks, inspect concentration and the effect a large loss would have on your goal. Consider the combined portfolio, your time horizon, and the need for accessible cash. Do not label all bonds equally conservative or all stock funds equally risky.
A common mistake to avoid
Assuming a bond cannot lose money ignores default, price changes, and inflation. Assuming stocks must recover before your deadline ignores timing risk. Historical returns are useful context but cannot ensure future results. Keep money required soon separate from a plan that depends on favorable market conditions.
Are bond funds the same as individual bonds?
No. A fund holds and trades a portfolio, and its share value fluctuates. It does not generally give you the same maturity-date arrangement as one individual bond.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or explore historical market returns using your own assumptions.