The differences between stocks and bonds

Most Americans probably have a rudimentary understanding of stock certificates. Millions of people participate in the stock market through mutual funds.

By comparison, relatively few people understand bonds. It is certainly confusing to grasp the concept that higher bond prices represent lower yields. In most basic form, the differences between stocks and bonds are simple:

• Stocks represent ownership of companies.
• Bonds represent loans made to companies.

Financial terminology is rich in jargon, so I have added a glossary of stock and bond terms. I also recommend this book, Understanding Wall Street, by Jeffrey Little and Lucien Rhodes. See your local bookstore or Amazon.com. (Several editions are available, but earlier editions are much more informative for the types of security instruments we collect.)