What are stocks, bonds and mutual funds?
Stocks (or, more specifically, common shares) represent a property right relationship. Ownership of a stock represents ownership in the company that issued the stock (e.g. owning shares in Wal-Mart means the shareholder owns an interest in Wal-Mart). Generally speaking, stock prices tend to have greater volatility than bonds. Bonds represent a lending relationship. Ownership of a bond does not represent ownership in the company. Rather, it represents an agreement between the bond issuer (e.g. a company) and the investor. The bond is evidence of the debt, and the bond issuer will pay the bondholder back the amount of the debt plus interest on that loan. For example, purchasing a Government of Canada Savings Bond represents a loan to the Government of Canada that must be repaid by the government with interest. It does not represent ownership in the government. Mutual Funds as described above, are pools of funds that can hold, among other things, both stocks and bonds.
