United Kingdom  

Celebrating 10 Years of Trusted News Discovery
One News Page
> >

Investing Basics Explained: The Difference Between Stocks and Bonds

Video Credit: The Street - Duration: 02:12s - Published < > Embed
Investing Basics Explained: The Difference Between Stocks and Bonds

Investing Basics Explained: The Difference Between Stocks and Bonds

Do you want to start investing, but you're confused about the different terms and concepts?

Here are the main ways to invest in companies, and the differences between the different ways: Investors can buy a company's stock or its bonds.

Either way, the investor is exposed to the risk and potential return the company can provide investors that hold its assets.

Bonds Bond holders get paid first out of all asset holders of the company.

Holding a company's bond means the investor owns claims on the company's debt, or the interest it pays to lenders.

The investor get fixed payments, which are a percent interest on the money paid to own the bond.

The debt is paid after operating expenses, but before taxes, so well before stockholders get paid.

This means the investor is taking minimal risk of losing principal, or the amount spent to buy the asset.

Bonds are usually less risky than stocks are, but they also usually don't return as much.

Stocks A stock represents ownership of the residual value, or equity, of the company, so claims on the company's assets after all obligations are paid.

This is after taxes and well after debt payments.

If a company has 100 shares outstanding, and an investors owns 1, he or she owns 1% of the equity (chances are, if an investor owns 1% of a company with billions of shares, that investor is a big wealthy investment fund).

Mature and stable companies pay dividends, but it's future profits that count.

When the market expects future profits to rise considerably, the value of the shares can shoot up.

Of course, that value can shoot way down for the opposite expectation.

Companies can either see huge declines in profits or huge increases, makings both more risky, but also potentially more profitable than bonds.

Preferred stock holders are the first of stockholders to get paid, and then common stockholders.

Preferred stockholders get their dividends first, and sometimes they get a bigger dividend.

Preferred stockholders don't have voting rights for big company decisions, while common stockholders do.

The difference between preferred and common has a lot to with bankruptcy.

In the case of bankruptcy, a company liquidates all assets, turning them into cash (selling assets and collecting receivables).

First, all parties owed money by the company are paid.

Then, bond holders are paid.

Company's have three parts to their debt structures: senior debt, mezzanine debt and junior debt.

Senior debt holders are paid first, then mezzanine holders and then junior debt holders.

Usually, junior debt has a higher interest rate, as the bondholder is being compensated for taking the risk of being the last bondholders paid.

Then, preferred stockholders are paid their cash.

Then, common stockholders are paid.

Got it?

For more investing education, check out TheStreet courses where Jim Cramer breaks down the Fundamentals of Investing.


You Might Like

Recent related videos from verified sources

G-20 Summit: Three Things Investors Should Know [Video]G-20 Summit: Three Things Investors Should Know

As the tit for tat between Washington and Beijing continues ... U.S. President Trump and Chinese President Xi are gearing up for the G-20 summit that is set to kick off on June 28 in Japan. Here's..

Credit: The Street     Duration: 02:01Published

Why Jim Cramer Thinks That Slack Is a 'Red Hot' [Video]Why Jim Cramer Thinks That Slack Is a 'Red Hot'

Jim Cramer weighs in on Slack going public Thursday. The reference price--not its pricing point, since it's not IPOing--for Slack's direct public offering Thursday was set at $26 by the NYSE. However,..

Credit: The Street     Duration: 01:03Published

Take a Look Now at All of Your Portfolio Positions [Video]Take a Look Now at All of Your Portfolio Positions

Have you taken a close look at your portfolio lately? Doug Kass, Real Money contributor and author of Doug's Daily Diary, wrote about what investors should do to protect their positions. Curious about..

Credit: The Street     Duration: 00:52Published

Here's What Trump Actually Wants in an Economic Policy According to Jim Cramer [Video]Here's What Trump Actually Wants in an Economic Policy According to Jim Cramer

President Donald Trump was asked about Jerome Powell and whether or not the Fed chair's job is safe. Trump told White House reporters Tuesday afternoon, "Let's see what he does," ahead of the Federal..

Credit: The Street     Duration: 01:29Published

Environmentally friendly: One News Page is hosted on servers powered solely by renewable energy
© 2019 One News Page Ltd. All Rights Reserved.
About us  |  Contact us  |  Disclaimer  |  Press Room  |  Terms & Conditions  |  Content Accreditation
 RSS  |  News for my Website  |  Free news search widget  |  In the News  |  DMCA / Content Removal  |  Privacy & Data Protection Policy
How are we doing? FeedbackSend us your feedback  |   LIKE us on Facebook   FOLLOW us on Twitter  •  FOLLOW us on Pinterest
One News® is a registered trademark of One News Page Ltd.