Bonds vs Shares: What Is the Difference?

Shares (equities) represent ownership in a company. When the company does well, the share price rises and you may receive dividends. Shares offer higher potential returns but with greater volatility — prices can swing significantly in the short term.

Bonds are essentially IOUs. You lend money to a government or company, and they pay you regular interest (the "coupon") and return your capital at maturity. UK government bonds are called gilts. Bonds are generally less volatile than shares but offer lower returns over the long term.

In a portfolio, bonds act as a stabiliser. When shares fall sharply (as in a market crash), high-quality bonds tend to hold their value or even rise. A common starting point is the "age in bonds" rule — if you are 30, hold roughly 30% bonds and 70% shares, increasing bonds as you approach retirement. However, with interest rates and inflation, the optimal split varies.