What are the similarities and differences in stocks and bonds?

Hi! Thanks for the question.

The similarity between stocks and bonds is that both are investment
vehicles that are used by companies to acquire much needed funds. The
other similarities that could be said of them are that both can be
traded in a market for stock traders (stock exchanges) or for bonds in
the bonds market. Just like any investment both carry risks. They are
also greatly affected by the economy.

The similarities that both stocks and bonds possess also bring about
their differences. When a company needs funds for example to build or
market a new product they may opt for stocks or bonds. When a person
buys a stock, the former becomes a part owner of the company so when
the company makes a profit, that person also makes a profit. When a
company meanwhile issues a bond and a person buys it, that person is
actually giving out a loan to a company. Aside from companies, the
government also issues bonds.

The risk that stocks carry is that when the company is performing
poorly the price of the stock generally goes down (Of course in the
stock market there are other complicated things to consider including
market psychology so this is not an absolute rule). Bonds also have
risks since the company that issued the bond may not pay the bond
(loan). Also when interest rates go up you lose on the bond since the
interest rate in your bond is pegged at a certain value and your money
is stuck there.

Understanding stocks, bonds and mutual funds by Mary Rowland
http://moneycentral.msn.com/articles/invest/prepare/1300.asp 

These are the basics if you need further information these websites
will be of great help.

Learning About Investing in Bonds
http://www.investorguide.com/bondlearning.html

Investing Basics Stocks
http://www.fool.com/school/basics/investingbasics003.htm

Portfolio Basics
http://www.msmoney.com/mm/investing/portfolio_basics/portfolio_basics_intro.htm

I hope this would be of value to your research. If you do need
something cleared or would require more information please ask for a
clarification first before making a rating. Thanks again for being a
part of Google Answers.

Regards,
Easterangel-ga

When you purchase a stock - you are becoming part of the ownership of
the company. Stocks (with exception of 'preferred stock') do not have
any guarantee of dividends. With bonds, you are giving the company an
IOU. There is a guarantee (made by the company) of a set interest
payment.
Stocks have averaged better than an 11% return over the last 75 years.
Bonds have averaged about half that.