Lesson 1: Stocks and Bonds

Objective

By the end of this lesson, you will:

• Understand what stocks and bonds are and how they work.
• Learn the differences between owning equity vs. lending money.
• Recognize the risk and reward trade-offs for each.
• Practice comparing the pros and cons of both investment types.

Definitions

Stock (Equity): A share of ownership in a company, giving you a claim on its profits and assets.
Bond (Debt): A loan you give to a company or government in exchange for interest payments and repayment of the principal at maturity.
Dividend: A payment made by a company to its shareholders from profits.
Yield: The annual income (interest or dividends) from an investment, expressed as a percentage of its price.
Maturity Date: The date when a bond’s principal is repaid to the investor.

How They Work

Stocks

• When you buy a stock, you become a partial owner of the company.
• Your returns may come from dividends and/or capital gains (selling at a higher price than you paid).
• Value can fluctuate daily based on company performance, market trends, and economic conditions.

Bonds

• When you buy a bond, you are lending money to an issuer (government, municipality, or corporation).
• You receive fixed interest payments (called coupon payments) over the bond’s term.
• At maturity, you get your original loan amount (principal) back—assuming the issuer does not default.

Risk vs. Reward

General Rule:
Stocks = higher risk, higher potential reward.
Bonds = lower risk, lower potential reward.

Suggested Activity

Compare Stocks and Bonds – Pros and Cons List

1. Divide a page into two columns: Stocks and Bonds.
2. List at least five pros and five cons for each.
3. Use research, class discussion, or your own reasoning to complete the list.
4. Discuss: Which one would you choose for a 5-year investment? For a 20-year investment? Why?

Reflection Questions

• Which is more appealing to you personally—stocks or bonds? Why?
• How does your own risk tolerance affect your choice between the two?
• Do you think a balanced portfolio should include both?

Further Reading & Resources

🌐 Investopedia: Stocks Basics Tutorial – investopedia.com
🌐 U.S. Securities and Exchange Commission (SEC) – investor.gov
📚 The Intelligent Investor – Benjamin Graham
📚 A Random Walk Down Wall Street – Burton G. Malkiel

Lesson Wrap-Up

Stocks and bonds are the building blocks of most investment portfolios.
Stocks can offer high growth potential but come with volatility.
Bonds provide more stability and steady income but generally lower returns.

Action Step: This week, pick two real-world examples—one stock and one bond—and track their performance for the next month. Record how their prices or yields change over time.