So, what are stocks and bonds? Basically they are two different kind of investment vehicles that allow you to grow your money relatively consistency over time.

Companies are split into shares called stocks. By buying a stock you buy a percentage of the company. As the company grows and makes money your shares of stock should also increase and if you have great dividend stocks you recieve income as the company makes a profit. The idea is to buy stock in strong companies that are unlikely to fail and like to grow then sell it for a profit in the future.

Bonds are different. They allow you to buy a portion of the company’s debt. When you buy a bond you, in sense, loan money to the company. In exchange for your contribution you recieve a nice cash flow of interest payments. Also when the bond matures the company will have to buy to back, hopefully it has increased so you could make money that way as well. The idea is to get into a bond, receive the interest payments and hopefully profit when the company buys the bond back.

So which strategy is better? If you take a close look at bonds vs stocks you will find that they both have some positives and negatives associated with them.

Bonds are usually considered to be pretty safe. If a company owes you money they must pay you back. So as long as the company is still around you should make money. The disadvantage of this is that you are likely to not make that much. Safer investments tend to pay poorer returns.

Stocks on the other hand have the potential to give off much higher returns, but they are also considered riskier and more volatile then bonds.

Each is a little different and each individual investor can decide which one seems like a better investment for them or you can take the generally recommended approach and diversify your money across both assets.

Lets look at stocks first. Basically these are just small percentages of a company, when you buy a stock you buy a small portion of the company. For example, if you bought a few shares of Pepsi stock then you are now a partial owner of the Pepsi company. As the company expands and grows over time then the stock would increase in price.

If this company offers a high dividend stock investors would be able to recieve some extra money as the company profits. If you own a dividend stock in a company that is making money then chances are you are getting a somewhat consistent cash flow from that investment.

Bonds are a little different. If the company needs to borrow money to finance their business expenses they may issue a bond. Investors that buy bonds don’t own part of the company and do not receive dividends.

But there are other advantages to buying a bond. They have helped the company borrow money to pay for something and in exchange they receive interest payments. This is similar to how a mortgage or credit card payment works; only you are receiving the money.

Bonds also have an expiration date. When they come due the investors will receieve payment for the full price of the bond. Then investors may choose to take that money and reinvest it into another bond to make more.

So, what is the better investment? That is up to each investor. Normally bonds are considered safer because it does not need a company to grow in order to make money. However if you take a look at a stock market graph is is plan to see that the higher risk also means higher rewards.

In the end deciding which security to invest your money into depends on your risk preference as well as how much time you have to let your money grow.