Basics of Stocks and Bonds

ZACH DE GREGORIO, CPA
www.WolvesAndFinance.com

An overview of Stocks and Bonds. Stocks and Bonds are a type of asset class. An asset class is a category of investments with similar characteristics. The video walks through an example of how stocks and bonds are used in practice. In the example a company wants to raise money. A company develops a business case to build a new factory for $500M. They can raise money in the financial markets by issuing stocks and bonds. Stocks are an ownership interest in the company. The video describes Market Capitalization. You calculate Market Capitalization using the current stock price to determine the current perceived value of the company. Bonds are debt issued by the company. Bonds can also be traded in the market and whoever holds the bond receives the interest payment. The main difference between stocks and bonds is that stocks are riskier than bonds. Bonds are set payment amounts. Stocks, on the other hand, are not a set payment. Dividend payments in stocks are based on whether a company makes profits. This allows you to participate in the upside or downside of the company. The other reason stocks are riskier than bonds is that in bankruptcy, bondholders get priority over stockholders. The reason why the differences between stocks and bonds are important is for managing investment portfolios. Your goal in portfolio management is to manage the risk of the portfolio, which you can achieve by managing the percentages of stocks versus bonds. One last point covered in the video discusses tax implications. For example, at the time of the shooting of this video there are different rates for short term capital gains versus long term capital gains for individuals. It is important to contact a tax professional to understand the implications of your investments.

Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.