|
Why are bonds considered safer than stocks?
A bond is a promise to repay a certain amount of interest to the bond holder; stock is ownership in a company. If a company loses money but stays in business, the value of the stock may go down. The bondholders, however, still get paid. And if the company goes bankrupt, the bondholders are first in line to get paid before the stockholders.Bonds tend to pay relatively lower returns in exchange for this lower level of risk. Their prices do go up and down in an inverse relationship to current interest rates, however, as alternate investments become more or less attractive.Return to Questions
|
