What is the difference between stocks and bonds?

Stocks represent ownership shares in a company. When you buy stock, you become a partial owner and can benefit from the company's growth through price appreciation and dividends, but you also bear the risk of losses if the company performs poorly. Stockholders are last in line to be paid if a company goes bankrupt. Bonds are essentially loans you make to a company or government. The issuer promises to pay you regular interest and return your principal at a set maturity date. Bonds are generally less risky than stocks because bondholders get paid before stockholders in bankruptcy, but they also offer lower long-term returns. Investors typically hold both to balance risk and stability in a portfolio.