Can you explain the difference between a stock and a bond? I’m trying to expand my financial literacy, and while I understand they’re both types of investments, I’m unsure how they're different in terms of risk, return, and their roles within a diversified portfolio.
In financial terms, a stock denotes partial ownership in a corporation (also known as equity). When you buy a stock, you're essentially buying a small piece of that company. The stock’s value typically fluctuates based on the company's performance. Hence, stocks can be risky, but they also carry the potential for high returns.

On the contrary, a bond is basically a loan that investors make to the issuers (which could be governments, municipalities, or corporations). When you buy a bond, you're lending money in exchange for periodic interest payments and the return of the bond's face value when it matures. Hence, bonds are generally consider less risky than stocks, but they typically offer lower returns.

Balancing these two types of investment is key to a diversified portfolio: it can be beneficial to have riskier stocks (which have a higher growth potential), and at the same time to have bonds, which can provide steady income and are typically more stable. As for the mix, it can depend on factors like your investment goals, risk tolerance, and the time horizon for when you'll need the money.