When building an investment portfolio, you may come across the question: Should you invest in stocks or bonds? Both asset classes serve different purposes and come with their own risks and potential rewards. Understanding how they work can help you decide how they might fit into your overall investment approach.
In this detailed guide, we’ll break down the differences between stocks and bonds, their key characteristics, and how to align your choice with your financial goals.
Stocks may offer growth potential but come with higher risk, while bonds provide stability and fixed income with lower risk.
Market conditions impact both asset classes—stocks tend to perform well in economic growth, while bond prices may fall when interest rates rise.
Choosing between stocks and bonds depends on your financial goals, risk tolerance, and investment timeline. Many investors hold both to create a well-rounded portfolio.
You can invest in both stocks and bonds on Public.com, allowing you to build a diversified portfolio suited to your financial goals.
Stocks represent ownership in a company. When you buy a stock, you own a piece of that company, which may entitle you to dividends (if the company offers them) and voting rights at shareholder meetings.
If the company does well, the stock price may rise, and you could earn a profit. Conversely, if the company performs poorly, the stock price may drop, potentially resulting in a loss.
Stocks are typically bought and sold on stock exchanges like the New York Stock Exchange (NYSE) or Nasdaq.
For example, if you purchase 10 shares of an ABC company at $50 per share and the stock price rises to $60, your investment value increases from $500 to $600. However, if the company faces financial difficulties, the stock price may decline, reducing your investment’s value.
Related Read: What are stocks? How does the stock market work
Bonds are debt securities issued by governments, municipalities, or corporations to raise capital. When you buy a bond, you are essentially lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.
Key characteristics of bonds:
Related Read: What are Bonds? Types, benefits, and how to invest in them
For example, if Company X, issues a 10-year corporate bond with a 5% annual coupon rate, and you invest $1,000, you would receive $50 per year in interest payments until the bond matures. Company X would return your original $1,000 principal at maturity, assuming they do not default. However, if the company’s financial condition deteriorates, there is a risk that it may not fully repay its bondholders.
The table below outlines the fundamental differences between these two primary investment vehicles:
| Feature | Stocks | Bonds |
| Returns | Potential for capital appreciation and dividends | Fixed interest payments with principal return at maturity |
| Risk |
Generally higher risk due to market fluctuations | Lower risk but subject to interest rate and credit risk |
| Income | May pay dividends, but not guaranteed | Provides regular interest payments (fixed income) |
| Market Volatility | More volatile, prices fluctuate based on market conditions | Less volatile, but bond prices change with interest rates |
|
Liquidity | Typically high, can be traded easily on stock exchanges | Can be less liquid, especially for corporate or municipal bonds |
|
Investment Horizon |
Often preferred for long-term growth | Often used for short- to medium-term stability |
When deciding between investing in stocks or bonds, several factors come into play. Your financial goals, risk tolerance, and market conditions may influence which asset class aligns with your investment approach. Below are key considerations to help you evaluate your choices.
Your ability to handle market fluctuations is a major factor in choosing between stocks and bonds.
Your time frame for investing—how long you plan to hold your investments—can impact your decision.
A mix of stocks and bonds may help balance risk and return.
You can sign up for an account on our website or download the Public app from the App Store (iOS) or Google Play Store (Android).
Once your account is set up and verified, you’ll need to deposit funds. You can add funds to your public account using ACH or debit card.
Navigate to the Explore page or use the search bar to find your stock or bond.
You can find your newly purchased stock/bond in your portfolio—alongside the rest of your stocks, ETFs, crypto, bonds, and options.
Stocks and bonds serve different roles in an investment portfolio. Stocks may offer growth potential but come with higher risk, while bonds provide income and stability. The right mix depends on your financial goals, risk tolerance, and investment timeline. A well-balanced approach may involve a mix of both asset classes to align with your objectives.
If you’re considering investing in stocks, bonds, or both, signing up on Public.com makes it easy to start. Public offers an all-in-one brokerage platform to simplify your investing journey where you can build a multi-asset portfolio, including stocks, bonds, crypto, options, and IRA.
Mutual funds are seen as more convenient because they offer built-in diversification and are managed by professionals. You don’t need to pick individual stocks or bonds—fund managers handle that, helping save time and potentially reduce risk.
Dividends are company profit shares given to stockholders. Bond interest is a predetermined payment to bondholders for loaning money.
