Investing Basics - Stocks vs. Bonds

What is a stock?

• A stock is a type of security that is sold to raise money for a company

• When you purchase stocks, you take ownership in that corporation

• Stocks are also called "securities" "equities" or "shares" and those who purchase them are called "investors" or "shareholders"

• Stocks are generally considered riskier investments compared to bonds since their value can change rapidly, however they can also offer larger potential returns over the long term

Stock Market

• A general term used to describe the whole system of stocks, shares, exchanges and buyers as well as sellers that are involved in trading

Stock Exchange

• Think of the stock market like a sport and the stock exchanges are like stadiums

• Stock exchanges are where the action happens

• They provide infrastructure and services for brokers and traders to buy and sell stocks, shares and other tradable financial assets

• Examples: TSX (Toronto Stock Exchange), NYSE (New York Stock Exchange), NASDAQ

  

Stock Index

• Shows the value of a specific group of stocks and is continually updated throughout each trading day

• These indexes can be based on national groupings or stock sectors (energy, financials, consumer staples etc.)

• A well known example is the S&P/TSX Composite Index and represents stocks traded on the TSX

By tracking the S&P/TSX Composite Index performance we can get an impression and idea of the overall health of the Canadian equity market while the S&P 500 Index performs a similar role in the U.S.

What is a bond?

• Bonds are a type of security that are sold to raise money (ie. for corporations or governments)

• Each bond has a maturity date and an interest rate that's agreed upon in advance

• Generally considered to be low-risk investments

• High-yield bonds issued by smaller companies and emerging market governments are obviously riskier

• Types of fixed income security include individual bonds, fixed income funds, ETFs, GICs and money market funds

  
  

Bonds and fixed income investments can be appealing to investors for various reasons such as a generally safer investment during times of economic downturn or as a part of retirement planning

• When you purchase a bond, you are lending money to the bond's issuer. Examples of issuer can be a government, corporation or a private institution

• When investors buy a bond, they typically receive regular income until it reaches its maturity date

If you have any questions or want to learn more about investing basics please reach out to me!

Information and articles provided by Fidelity Investments

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was prepared by Alison Cannell, for the benefit of Alison Cannell, Financial Advisor with Cannell Wealth Management Inc., a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this blog comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.

The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the Fund Fact sheet or prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.