Stocks vs. Bonds: What to Know Before Investing

Sarah Hwang, Walter Payton, Junior, Fall 2025

Many young people are discouraged from investing because they don’t know enough to confidently invest their money. A survey referenced by CNBC noted, “37% of students wouldn’t invest if given money to put in the stock market” (Dore, 2021). As young people consider investing, it’s important to start with the basics: stocks and bonds.

Stocks are proportional ownership stakes in corporations. Investors buy shares with the expectation that the value of those shares will increase. However, the value can decrease due to market circumstances and company performance. 

Bonds, which are loans companies issue to investors, are often overlooked by investors. Bonds are considered fixed-income instruments due to the company’s obligation to return that investment through fixed payments. Alphonse Gray, a portfolio manager based in Chicago, explains bonds as a hierarchy.  At the bottom are government bonds that are fully backed by the US government; next are treasury bonds and municipal bonds; and lastly, corporate bonds, which offer a higher return, but with greater risk. For example, bankrupt companies can avoid paying back certain bonds, leaving those investors with a significant loss of their investment.

For teens just beginning to invest, bonds might not align with their long-term goals, as they offer lower returns than stocks. Research from the NYU Stern School of Business found that “$100 invested in the S&P 500 [in 1928]... would be worth $982,817.82 today. In contrast, the same amount invested in 10-year U.S. Treasury bonds would only be worth $7,159.45” (Henricks & Conde, 2025). These numbers prove how crucial it is to do preliminary research prior to investing.

There are several strategies that people use to manage the high risk of stocks.  One way is diversification, which is when an investor varies their investments in multiple types of stocks. A common pathway for beginners is stock indexes, or the measurement of the performance of a group of stocks, as diversification is built into them. Whether or not an investor chooses to start with stock indexes, Elizabeth Stack, a financial professional with a Chartered Financial Analyst designation, advises young investors to “start investing as soon as possible” and offers the encouragement that “no amount is too little.”

The information provided in this article is for educational and informational purposes only and should not be interpreted as financial or investment advice.