First, it is important to distinguish the differences between stocks and bonds. Stocks are a type of security that represent partial ownership of a company and allow them certain rights and privileges as shareholders of the company. There a many different types of stocks, such as common stock, preferred stock, and classified stock. Stocks generally are more volatile than bonds but also have a higher return than bonds. Bonds are issued by corporate entities, municipal entities, and the U.S Treasury. Bonds are less risky than stocks. With bonds, the investor receives regular interest payments and the return of the original investment amount. In addition, the interest received from municipal bonds are generally exempt from federal taxation and may also be state and local tax exempt. The type of security investors choose depends on the investor's risk aversion as well as their investment timing horizon. Considering this information, investors deciding to invest entirely in bonds is not irrational. Although stock investments have tended to substantially outperform bond investments over long periods, bonds are attractive to investors because of the regular cash flows received. Bonds provide steady income to the investor. If the investor holds the bond until maturity, they will receive the entire principal amount