Stocks – Also called Equity. They are usually broken down into miniscule amounts called shares (a company is generally composed of hundreds of millions of shares) that represents actual ownership of the company. Since they are owners of the company, they are only entitled to the profits once all other types of claimants are satisfied such as the bond holders. This feature makes them more risky than other securities but it can also yield a higher return which makes them attractive as a long-term investment.

As stocks gain in value, they are only taxed once sold at a lower rate of 0% to 20% (depending on your tax bracket) and a higher rate (taxed as ordinary income) if the stocks are sold within a year.

There are also different classes of stocks such as Class A or Class B. Typically, Class B has more voting rights over Class A.

The estimated current market value of all US equities is approximately $26.5 trillion.

Bonds – Also called Fixed Income because the owners are only entitled to the stated interest rate. For example, you buy a $1,000 bond at a 5% interest rate, you are entitled no less and no more than $50/ year, hence the name fixed income. Bondholders are usually entitled to be paid before anyone else making a claim on the company assets. Since the payment is a fixed amount, bonds are usually less risky than equities which makes them suitable for shorter term investments.

Since bonds, pay out a fixed amount per year, the tax rate on the interest payments would be taxed as ordinary income. Some bonds such as municipal bonds are exempt from federal taxes.

The estimated current market value of all US bonds is approximately $40 trillion.