Stock vs. Bonds: What's the Difference?

Sound investments are a crucial component of good financial health. Investing puts your savings to work, building wealth for the future.

Stocks and bonds are two of the primary investment types. And while they both help your money multiply, there are a few key differences between them. 

At Origin Bank, we know investing can be confusing. While we'll leave the advice and detailed information to the investment professionals, here are some basic tips to help you build your nest egg.

The difference between stocks and bonds

Choosing between stocks and bonds is like choosing between becoming a business partner (stocks) or a lender (bonds).

Stocks: Higher risk, higher reward.

Stocks reflect ownership and signify a stake in a company. When you buy a stock, you own a small piece of that business, known as a "share.” If the company does well, the value of your shares increases and you can sell them for a profit on the stock market. Dividends, which are regular payments to shareholders derived from profits, are also paid by some companies.

Stocks can be volatile, meaning their prices can rise or fall quickly. If the company performs poorly then your shares might lose value or even become worthless. However, stocks usually offer high returns, and this feature makes them a popular choice for long-term growth.

Bonds: Lower risk, steady returns.

Bonds function like loans because they involve borrowing money. When you buy a bond, you lend money to a company, government, or organization. They will promise to pay you back with interest over time. Bonds provide regular interest payments, and when the bond matures, usually in 20-30 years, you get your initial investment back in full.

Investors consider bonds less risky than stocks, especially those issued by governments. However, if the issuer cannot repay you and if interest rates rise, the value of your bond could decrease. Investors often choose bonds for their stability and reliability, avoiding the ups and downs of the stock market.

Make the most of your investments

Whether you opt for stocks, bonds, or a combination of both, here are a few easy ways to ensure your investments are helping you meet your goals:

  1. Understand your financial goals. List your investment objectives, whether it’s saving for retirement or affording a down payment on a home. Then, set an ideal timeline for achieving your goals.
  2. Assess your risk tolerance. Decide how much risk you're comfortable with based on your financial situation. Consider how close you are to retirement, how stable your income is, and how well you’d be able to recover from potential losses.
  3. Choose investments that align with your goals. If you have a long-term horizon, meaning you have a decade or more to accumulate profits, growth-oriented assets like stocks might be a good fit. But if you’re close to retirement and stability is your priority, you may choose to focus on low-risk investments like bonds.
  4. Diversify. To reduce risk, experts recommend you avoid placing all your money in a single type of asset. Go for a mix of stocks, bonds, and other investment items like real estate or mutual funds.
  5. Rebalance regularly. At least once a year, take a look at your portfolio to make sure it aligns with your original strategy. If certain assets are growing or shrinking disproportionately, you can adjust the allocation. However, avoid reacting to short-term market fluctuations or news – focus on the asset’s long-term growth prospects instead of short-term price movements.
  6. Think long term. Focus on building wealth over time rather than chasing quick profits. Use tax-advantaged accounts like IRAs or 401(k)s when possible, and remember that consistent contributions and patience lead to better outcomes.

When it comes to your financial journey, you don’t have to fly solo. While we don’t provide investment services at Origin, you can start saving with an Origin Bank personal savings or money market account to build for your future. Schedule a consultation with a trusted advisor today!

Origin Bank is not a stock brokerage. This material is for informational purposes only. Please consult your financial advisors for assistance.

NOTE THAT INVESTMENT PRODUCTS ARE NOT A DEPOSIT, NOT FDIC-INSURED, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY, NOT GUARANTEED BY THE BANK OR AN AFFILIATE OF THE BANK AND MAY GO DOWN IN VALUE (IF APPLICABLE).