what is the link between IRA and investment particularly stocks and bonds?

Answer 1

An IRA is a tax deferred account. It is a holding place for your investments that you want to be tax deferred. There is a limit to the amount you can put in your IRA each year. Everything else you invest in, is taxed at the full rate of return, and remains outside the IRA.

You can put a lot of different kinds of investments in your IRA -- stocks, bonds, or the IRA can be managed by a Mutual Fund, who will then decide which stocks to buy, or what percentage should be invested in bonds, for example. Any earnings or appreciatation of these investments in the IRA are tax deferred until after you retire, probably at a lower tax rate.

If you buy many different stocks, you are "diversifying risk," not "hedging risk." A "hedge" is when you sell a Call Option, or buy a Put as insurance.

A stock is an asset (equity), while a bond is a debt instrument (security or pledge). Since a bond is a loan of money, it pays the current going rate of interest monthly (attached to a bond, this is the Coupon). At maturity, you get your entire loaned amount back, plus all matured interest.

Answer 2

IRAs can be mutual funds, which are just groups of diversified stocks, thereby hedging the risk.