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CNN Live At Daybreak

Ask CNN: What's the Difference Between Stocks and Bonds?

Aired July 18, 2001 - 07:49   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CLAYTON, CARTERSVILLE, GEORGIA: Hi, my name's Clayton. I'm from Cartersville, Georgia. And my question is what's the difference between stocks and bonds?

BILL DORMAN, CNN FINANCIAL CORRESPONDENT: Stocks and bonds can both be part of an investor's portfolio, but they are different kinds of investments.

When you buy stock in a company, you're really buying a little piece of that company. How much of that company you own is reflected by how many shares of stock you buy.

Bonds are a different story. When you buy a bond, you're actually loaning money to the group that issues the bond, and you're getting interest in return.

There are different kinds of bonds, depending on who's doing the borrowing. One of the most common types is the U.S. government's 30- year Treasury bond. Other kinds of bonds include corporate bonds, which companies issue when they want to raise money. There are also municipal bonds, which are for state and local governments, and for investors those are usually tax free, which can make them more attractive.

So when you buy a stock, you're buying part of a company. When you buy a bond, you're loaning money and getting interest in return. Either way, you're making an investment.

Good luck, and thanks for asking CNN.

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