Ready to explore the other major type of security? While equity makes you an owner, debt securities make you a lender!
When you buy debt securities like bonds, you're essentially lending money to organizations in exchange for regular interest payments.
Engagement Message
Name one key difference between being a lender and being an owner.
The most common debt security is a bond. Think of bonds as formal IOUs (short for "I Owe You," meaning a written promise to repay a debt) from companies or governments.
When you buy a bond, you're saying "I'll lend you money now, and you promise to pay me back with interest."
Engagement Message
Which is generally considered safer to lend to— a government or a company?
Here's how bonds work: You pay $1,000 for a bond today. The organization promises to pay you interest (maybe $50) every year for 10 years, then return your $1,000.
Unlike stocks, bonds have fixed terms and maturity dates when you get your principal back.
Engagement Message
Give one reason someone might favor bonds’ predictability over stocks’ uncertainty.
Government bonds are considered very safe because governments rarely default on their debts. The U.S. Treasury issues bonds to fund government operations.
Corporate bonds are riskier because companies can go bankrupt, but they typically pay higher interest rates to compensate for this risk.
Engagement Message
Why do corporate bonds usually offer higher interest rates than government bonds?
Here's a key difference from equity: bondholders don't own the company and have no voting rights. You can't elect directors or influence company decisions.
However, if the company goes bankrupt, bondholders get paid before stockholders - you're higher in the priority line!
Engagement Message
In a bankruptcy, who gets paid first—bondholders or stockholders?
