Whats a Bond? Whats a stock?

What is a Bond?   Simply it is a loan to a company for a certain time; which they give you a agreed upon amount while they have your money.  Basically like asking your friend to barrow $20 and you will pay them $21 when you pay them back in 3 months.  A 5% return.Where did bonds start?  Well first general government bonds were issues by the Netherlands in 1517 and national government by England in 1694 to fund a war against France.

What is a stock? Simply it is ownership of a company.  Why would you do this? The idea of owning a stock is you believe in the company and as part owner the company shares it's profits with you through dividends.  Companies do this to raise more money to grow, expand, or pay off debt.  

Example:  You start a company and put in $20,000 of your own money and you get 2 friends to put in $10,000 each. You now have 3 share holders of your $40,000 company.Where do stocks come from? Stock have been traced back all they way to the Roman Empire.  Basically the same reason as today, build income for the company to expand.

How are stock and bonds related?   Bonds are considered a safer investment and safer usually brings smaller returns.  Stock are consider riskier investment and can give a bigger return.  So when the market is going well people invest more in stocks and less in bonds.  This can increase inflation (stuff cost more) which eventually causes the government to raise interest rates.   As long as companies are making money stock prices increase, while bonds may continue to fall if rates continue to be lowered.

Eventually the good times stop due to the economy slowing down or the market is worried about it slowing down.  Bond prices usually rise because investors jump from stocks into bonds for a "safer" investment.  This usually leads to interest rates falling and prices of bond raise.  Bond and interest rates are inverse of each other one goes up and the other goes down.Remember this is life and not a contest.  Some risk is good to much will lead to disaster.  Your finances don't fall into the "Go Big or Go Home". If you do it could be "Trade often and retire broke."