How do bonds differ from investing in common stock?

There are three.

1. What they are: Bonds are basically a loan of money to a company. Stocks denote partial ownership in the company.


2. Rate of return: Stocks offer a potentially higher rate of return because they're riskier than bonds are. (The "high yield" or "junk" bond has returns similar to stocks, but it's about as risky as stock.)


3. If the company defaults, bondholders are paid in full before stockholders get anything.


That's corporate bond basics. There are also municipal bonds--those issued by a government body from state level down to agencies of city governments--and Treasuries, which are issued by the federal government.
There are three.

1. What they are: Bonds are basically a loan of money to a company. Stocks denote partial ownership in the company.


2. Rate of return: Stocks offer a potentially higher rate of return because they're riskier than bonds are. (The "high yield" or "junk" bond has returns similar to stocks, but it's about as risky as stock.)


3. If the company defaults, bondholders are paid in full before stockholders get anything.


That's corporate bond basics. There are also municipal bonds--those issued by a government body from state level down to agencies of city governments--and Treasuries, which are issued by the federal government.