Stocks and Bonds

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Today I want to talk about Investment 101.

What is the difference between stocks and bonds but first, let me ask you a question.

The question is, how do you become a 401k or 403b Superhero to your future self?

That is the question and these videos will give you the answers.

I’m Jonathon Schultheiss and welcome to the Becoming a 401k Superhero videos.

What is the difference between a stock and a bond?

I get asked this question a lot.

Stocks are equity. It means you own a piece of the company.

When a company sells, they go to the market and sell on the stock exchange and you can buy a portion of that company.

When a company issues bonds, its debt.

You are loaning the company money. They are borrowing money from you.

A stock is an equity and a bond is a debt.

How do you make money in stocks? You make money in stocks because the company makes a profit.

If they make a profit or go up in value, your value goes up. If they go down in value your value goes down.

In bonds, you make money on an interest rate.

Bonds are typically issued at $1,000 value. You buy that bond and it pays you an interest rate over time and then you get your $1,000 back but you've received interest over time as you have held that bond.

Stocks go up and down with the market, they go up and down with profit and losses. Bonds dont.

Bonds usually just pay the interest rate and you get your money back.

How do bonds go down? Bonds are tied to current interest rates.

If you have a bond that is paying 4% and interest rates go up so new bonds are paying 5%, if you need to sell your bond you would be selling your bond at a discount.

Why would someone buy your 4% bond if they could go get the new bond at 5%?

Interest rates going up, makes the value of bonds go down.

Typically, bond are more conservative. They don't have as much fluctuation unless you see interest rates changing whereas stocks can be very volatile based on the stock market or profit and losses of a company.

Usually the more bonds you have in the portfolio the more conservative the portfolio would be, the more stocks you have in the portfolio the more aggressive that portfolio would be.

Understanding the difference between stocks and bonds is a great way to become a 401k Superhero to your future self.

If you have questions about your 401k investments and you would like to talk stocks and bonds, click on the link above and lets schedule a time to talk today.