Bill Losey's National Retirement Planning Month - Stocks & Bonds 101

The term “stock” and “share” both refer to a fractional ownership interest in a particular company. When a corporate business is first organized, investors contribute money to fund the enterprise, and in return receive shares of stock representing ownership in that company. When the company is successful, it will grow and have profits, and the shares generally become more valuable. If the business isn’t successful, the value of the shares will usually decline.

While stocks represent ownership in a business, bonds are debt. Bonds are issued by institutions such as the federal government, corporations, and state and local governments. A bond is evidence of money borrowed by the bond issuer. In return for loaning money to one of these institutions, you as the bond holder would receive interest and when the bond matures at some point in the future, the principal would be returned to you.

Stocks and bonds both carry many risks. For example, the market value of your shares will fluctuate up and down every day. If you need to sell your shares or bonds on a day when they are worth less than what you invested, a capital loss will result. If you need to sell them on a day when they are worth more than you invested, you have a profit and a capital gain will result.