Share vs bond
A share is a small slice of a business's ownership and future. A bond is a loan you give to a borrower, who promises interest and your money back later. A share is not a loan, and a bond is not ownership. Each trades something away to gain something else.
Share and Bond side by side
| Share | Bond | |
|---|---|---|
| What you hold | A small part of ownership in a company | A loan to a government or company |
| What is promised | Nothing fixed: you share in how the business does later | A fixed interest rate, the coupon, and your money back later |
| Claim | On the company's future profits, and a small vote | On the promised payments |
| Main risk | The business does badly and the price falls; no return is promised | The borrower fails to repay, called credit risk |
| Upside | You share in the business growing | Limited to the fixed payments |
| Typical use | A company raising money to grow, without borrowing | A borrower raising money against a promise to repay |
Two ways to fund growth
Growth almost always costs money before it earns any. There are two honest ways to close that gap. One is to borrow, a loan repaid with interest whether the growth works out or not. The other is to invite people to put in money in exchange for a small slice of ownership in the business itself. That slice is a share.
A share is not a loan
There is no fixed interest to pay back on a fixed date. The people who put in money share in how the business does later, for better or worse. They take on some uncertainty and in return grow their money alongside the business, not just collect a fixed payment.
A bond is a loan
A bond promises a fixed rate, the coupon, and the return of your money later. But a promise is only as good as the borrower making it. The chance that the borrower does not repay in full or on time is credit risk, and a higher rate is the market pricing it.
Choosing between them
They sit at different points on the risk line, and each trades certainty against the chance of more growth. The right fit depends on your goal and when you will need the money. Maetis does not give investment advice.
A tailor needs a second machine (hypothetical)
A tailor wants a second sewing machine. She can borrow, and repay with interest whether orders grow or not: the lender holds a loan, like a bond. Or she can invite people to put in money for a slice of the business: they hold shares, with no fixed repayment, sharing in how the business does later. The lender's payments are fixed. The shareholders' outcome is not.
Common questions
- What is the difference between a share and a bond?
- A share is a slice of ownership. A bond is a loan to a borrower, with a promised interest rate and repayment.
- Which is riskier?
- A share carries the risk of the business doing badly, with no return promised. A bond carries credit risk. Where each sits depends on the issuer.
- Does a share pay a fixed return?
- No. A company may pay a dividend, but it is never obliged to.
- Can a bond lose money?
- Yes. If the borrower cannot pay, you could receive less than promised, and a bond's price also moves with interest rates.
Related terms
This page compares ideas and does not recommend either one. Maetis does not give investment, tax or legal advice.