What is the difference between bonds and equities ?


Quick Answer

Bonds are a form of debt that the seller incurs, whereas equities denote ownership in a corporation, such as stocks. Unlike bonds, stocks automatically confer voting rights and the potential to share in future profits to their owners.

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Full Answer

Bonds and equities are both forms of securities, or intangible assets. "Equities" applies to an assortment of securities products that amount to ownership interest in a business. In the context of personal finance, "equities" may indicate an owner's interest in personal assets, such as houses and vehicles.

The purchaser of bonds becomes a creditor to the seller, assuming an amount of debt that the bond represents. Bondholders have a superior claim on assets as compared to shareholders, or those who own equities, namely stocks. If a company goes bankrupt, it pays bondholders first and shareholders second.

Bonds are typically lower in risk than equities, but the returns are also lower and consist of principal plus interest. Conversely, equities, such as stocks, may be higher in risk but potentially yield higher returns if the market is conducive and the company does well.

Corporate and government bonds are the two main types of bonds. Corporations offer projections of their future earnings and, occasionally, tangible and intangible assets as bond collateral. They issue bonds in blocks of $1,000 in par value.

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