InvestmentGradeBonds.net

Stocks and bonds are two very different investment vehicles. Stocks are generally much riskier to invest in than bonds, although bonds definitely do carry some risk. Of course, stocks also have a far greater potential for reward.

If you invest in a stock, that stock could take off and double or triple your initial investment in just a few weeks. Of course, it could also fall and lose you a great deal of money. People have gone bankrupt because a stock they chose fell dramatically after they bought.

When you invest in bonds, the money is a bit safer. The issuer could still go out of business or go bankrupt and not be able to pay back the principal upon maturity, but for the most part bonds are fairly safe.
Of course, bonds don’t have the potential for such a great reward, either. While they carry far less risk than stocks, the amount of money you can make from them is fixed. If you invest $1,000 into a bond that pays 4% interest, you will make $40 per year in interest – no more, no less.

If you invested that $1,000 into a stock and that stock price doubled within a year, your investment would have doubled. You would make $1,000 investing into that stock, as opposed to $40 for investing in the bond.
Obviously it is rare for a stock price to double in a year. It’s just an extreme example to illustrate the point. Investing into bonds is less risky, but the amount of money you can make is limited. With stocks, there is far more risk, but your potential for income is practically limitless.

I don’t actually recommend choosing one over the other. A good portfolio is diversified, and the risk is spread out over multiple investment types. You should decide what level of risk you are willing to accept, and invest accordingly.