what is the difference between stocks, bonds, and CDs? compare their risks as investments.?

Answer 1

stocks you actually own a part of that company. Bonds depends on the bond but most are used as fixed income assests some are municipal bonds with the money raised from those bonds go to pre assigned projects. CD are a fixed rated guarantee investment back by the federal banks so CD is least risk bonds a little more risky but the stocks have teh greatest risk and they are NOT insured.

Answer 2

Comparing the risks is really very difficult. The reason being taxes and inflation. When you consider that cds and bonds are both taxed at the full tax rate and that inflation is aroding the capital at a rate of 4++% a year, there is essentually no return from those two options. Some stocks on the other had do pay dividends, some at better than 4% which for most stocks but not all is taxed about about 1/2 the full rate. Also if the stock is in a sound growing company or better yet in about 20 to 30 sound growing companies and the stocks are not sold but are left to grow, then historically their returns are about 10% to 13% on average tax deferred until sold.

Another difference is that stocks do sometime increase their dividends. CDs and bonds pay a fixed amount. Stocks are generally considered more risky than CDs. Bonds are considered less risky than stocks, but I believe that judgement might be misplaced. Bonds are ahead of stocks in call on assets for bankrupt companies. If a comany goes bankrupt, unless the bonds in question are backed by particular assets they probably will not fare too well in the proceedings. The holder will normally be given more worthless stock in the reorganized company. Hot dog.

There are two risks to owning stocks, specific risk which is the risk that a particular stock might not do too well and systemic risk which is risk that the market in general might not do too well. Stock markets have been know to crash.

There are also specific risk and systemic risk in owning bonds. The bond market has also been know to crash, as it did in the late 70's early 80s when interest rates went to 15%.

The main risk with cds is taxes and inflation. The government, God bless its benevelent soul, has eliminated specific risk for cds. Actually kind of stupid, but that is the government.

Answer 3

Stocks are shares of a company. Depending on how you're investing, these can range from mildly risky to very risky. For example, an index mutual fund invests in a bunch of stocks at once, reducing your overall risk. Investing all in one stock can be exceptionally risky, as that company could tank.

Bonds are debt owed by governments and companies. Bonds come in different flavors of risk, and are usually rated as grades . Government backed debt is the lowest risk and usually the highest grade debt you can buy. What are typically known as "junk bonds" are debts that have a higher risk of default (the loan not being paid back).

With bonds, you make the interest the debtor has to pay on the loan. But there is also the principle, which is the original amount you paid for the bond. When the bond matures, you get your principle back.

That being said, yield and value of bonds can vary, though the higher rated bonds don't fluctuate nearly as much as junk bonds.

CDs are the most stable of the investment vehicles you mention. CDs are pretty much "loans" to the bank. Basically, you put your money in the bank and promise not to touch it for a given amount of time. The bank then uses your money for things like loans to others. The bank makes a percentage of interest off the money, and in turn pay you some of that interest for you allowing them to use your funds.

Of the three, CDs are usually the lowest yielding but they are also the safest (backed by FDIC). With bonds and stocks, it's possible to lose you're investment but it is also possible to make a huge profit.

It all depends on what your risk level and investment horizon are.

~X~

Answer 4

Bonds and CDs dont pay have as much % return compared to what is possible to stocks. However they are much safer investments. The way I see it people with bigger amounts of money (over 100k tend to invest in Bonds and CDs because a 5% annual return is a hell of a lot of money for someone with 1 million dollars compared to someone with $10,000).

Answer 5

shares- companies split up ownership and profits in their company by splitting up stocks and shares. Basically they will sell shares and stocks and whoever buys it owns a % of that company. For example, if i open up a lemonade stand i could and i decided to have 10 shares in my company... i could sell some shares to other people and they would share in ownership and profits..... the reason buisnesses do this is to gain some money to help start their buisness. Shares are pretty risky but have a good return.Bonds- basically u pay the government a certain amount so they can build what they want to with your money... in a couple of years they will pay you back, but not much do. CD's i forgot exactly what they are but most people dont use'em any more, if you want to really start investing in the stock market, i suggest buying a mutual fund. A mutual fund is basically a whole bunch of different stocks from different companies all put into one... its less riskier than actual shares, and usually these will help you get money faster, but not for the short term.... only in 5-10 years... if you want money quick investing in real estates are good. HOPE I HELPED.

Answer 6

Risk??
Common stock is the riskiest - not insured, no guarantess - subject to fraud and white collar crime as in Enron. Value affected by business conditions and market emotion.
CD's are safe gauranteed by FDIC insurance although that fund is small and would probably fail if we had a large number of bank failures at the same time.
Bonds can be anywhere form ultra safe as in a Treasury Bond which will be the last standing store of value in the American economy to ultra risky as in a corporate bond issued at high interest rates because the banks don't trust them to loan them money anymore.

Answer 7

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Answer 8

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Answer 9

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Answer 10

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