Stocks and bonds are two of the most common types of investments, but they work in very different ways. Stocks represent ownership in a company, and when you buy shares, you own a portion of that company. Stockholders can benefit from capital appreciation if the company grows, as well as dividends if the company pays them.

Bonds, on the other hand, are debt securities. When you buy a bond, you’re essentially lending money to a company or government in exchange for periodic interest payments, plus the return of the principal amount at maturity. Bonds are considered lower risk compared to stocks because they offer fixed returns and have priority over stocks in the event of bankruptcy.

The key difference between stocks and bonds is risk and return. Stocks have the potential for higher returns, but they come with greater risk. Bonds offer more stable, predictable returns but generally have lower growth potential. A balanced portfolio often includes both stocks and bonds to manage risk and return.