Introduction to Stocks and Bonds

Stocks represent ownership in a company. When you purchase a stock, you're buying a small piece of that company's assets and earnings. They fluctuate in value based on company performance and market conditions.

Common stocks offer voting rights and potential dividends. Preferred stocks provide no voting rights but offer a fixed dividend. Share values of common stocks are more volatile than those of preferred stocks.

Bonds are loans investors make to entities (governments, municipalities, corporations). In return, bondholders receive periodic interest payments and the principal back upon maturity. Bonds are typically less risky than stocks.

Bond terms vary widely. 'Coupon rate' is the interest rate paid by the bond. 'Maturity' indicates the loan's length. Bonds can be 'called' or repurchased by the issuer before maturity under certain conditions.

Stocks potentially offer higher returns with higher risk, while bonds tend to offer lower, more stable returns. Investors often balance their portfolio with both to manage risk and leverage growth opportunities.

Stocks and bonds are influenced by interest rates, economic data, geopolitical events, and market sentiment. For instance, bond prices generally fall when interest rates rise, and vice versa.

Stock market crashes and bond defaults, though rare, have occurred and shaped investing strategies. The Tulip Mania, South Sea Bubble, and recent 'Negative Yield Bonds' phenomenon challenge traditional investment wisdom.