When people want to invest, the first thing that comes into their minds is investing in stock. Stock investment is very attracting. After all, stocks are inducing, for we often hear stories of investors gaining great wealth. Compared to stocks, people find investment in bonds deadening particularly when prices of securities are rising. However, bonds are more stable and secure and it only takes a bear market to be at peace with the investment.

What are bonds, anyway? At some point in your life, have you ever borrowed money? Of course, we have. Just as most of us need money, the governments and companies do so also. However, there are times when banks cannot provide the amount to these organizations; they raise money by issuing bonds to the public instead.

A bond is a formal unconditional promise made under seal to pay a specified amount of money at a determinable future date, and to make periodic interest payments at a stated rate until the principal sum is paid.

A bond is evidenced by a certificate and the agreement of the parties is contained in another document called "bond indenture." An investor acquires bond either as a temporary or permanent investment. Income is derived in the form of interest paid every six months. There are bonds however that pay interest annually or at maturity date.

Is bond an equity security or debt security? In a simple language, a bond is a contract of debt whereby one party called the issuer borrows fund from another party called the investor. Thus, a bond is a debt security because the bondholder is a creditor and the issuer is a debtor. The relationship is that of a lender and a borrower.

Bonds are debt, whereas stocks are equity. By purchasing a stock, an investor becomes an owner of a corporation. Voting rights and the right to share in future profits come with this ownership. On the other hand, when one purchases bonds, an investor becomes a creditor to the corporation and has a priority claim than the stockholders over the assets of the corporation in case of bankruptcy.

For retirement, the easiest investment to think of is one where an individual is living off at a fixed income. In stocks, the risk is higher and a retiree simply cannot afford to lose his/her income to pay the bills. Because money is relatively needed in the future, fixed income security is likely the best investment.

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