• There are two primary ways to invest in a company through partial ownership: stocks and bonds. The attributes for both are driven by the needs of the investor. The most dramatic disadvantages of stocks over bonds can be seen in the payout structure, return and risk. While a bond is a form of debt that a company is obligated to pay back, equity is ownership that may not get paid back but has the potential to appreciate in value more so than bonds do.
  
  

Ownership Vs. Debt

• Stocks represent ownership and participation in growth. If the company does not grow, the company is under no obligation to repay the investor. In this way stocks are more risky than most bonds in terms of principal protection.
  
  

Periodic payment Structure

• Equities trade on an exchange. While some stocks have dividends, which are quarterly payments to shareholders, the amount is usually very low per share. The bulk of equity return comes from participation in the potential for share price appreciation, which is impossible to predict. However, bonds provide a periodic and known payment cycle.
  
  

Risk and Return

• While the possibility of making money is higher with stocks, the possibility of losing money is also amplified. In general, what is a disadvantage for equities is an advantage for bonds and vice versa with regard to risk. This is why fund managers recommend a diversified portfolio with contributions from both investment vehicles.