Knowing Your Investment Bonds from Your Shares

By Tony Levene

Part of Investing For Dummies Cheat Sheet (UK Edition)

You will often hear investors mentioning both shares and bonds in the same breath. They can come from the same company, but there are plenty of differences. These differences include the following:

  • Shares are permanent, or until the company is taken over or goes bust. Bonds usually have a fixed life, shown on the paperwork you get.

  • Shares pay dividends, which can vary. Bonds pay interest, which should be fixed.

  • Shares give holders a say in the company proportional to their holding. Bondholders, in most circumstances, have no ownership or annual meeting voting rights.

  • Share prices can be very volatile. Bond prices vary less from day to day.

  • Share prices depend on profits. Bondholders have to worry about credit risk – the chance of the company going bust and failing to repay – because they won’t share in any profit increase.