This baby talk is surprisingly informative!
The world of stocks and bonds can be pretty intimidating. But when two adorable babies are doing the explaining, it’s a lot easier to understand.
We'll break it down for you here again to help you digest this information.
A stock is a share in a company, which basically means that if you buy stock, you become a part-owner of a company, which is why they're also called equity.
A bond is basically an IOU. Buying one means that you're lending a company your own money. They pay you back with interest, which is how you make money with bonds.
When you purchase a stock, you're basically betting that the company you've purchased from is going to increase in value. This makes it a riskier investment compared to bonds, but if the company does do well, the pay-offs can be huge in the long-term.
Bonds don't have as much long-term return potential, but because they're less risky, they're also an attractive investment. Though there is a chance that the company might default and you experience a loss, most of the time, you get your money back and more.
You don't have to choose one or the other. Plenty of people invest in both stocks and bonds. This lets them diversify, which means you're spreading the risk—not putting all your eggs in one basket.
Not sure what you're doing? Do a lot of research. Consult a financial advisor or someone with lots of experience in investing in stocks and bonds. Stocks and bonds aren't as intimidating as they initially seem, but it does take a bit of know-how to understand how the market works.