What is the difference between a stock and a bond?

A stock represents ownership in a company. When you buy a stock, you become a partial owner (shareholder) and your returns depend on the company's performance, through price appreciation and sometimes dividends. Stocks carry higher risk but offer greater potential returns. A bond is essentially a loan you make to a company or government. The issuer promises to pay you regular interest payments and return your principal at a set maturity date. Bonds are generally lower risk than stocks because the payments are fixed and contractually obligated, but they typically offer lower long-term returns. In the event of bankruptcy, bondholders are paid before stockholders, making bonds the safer instrument.