Bonds have the illusion of being less risky than stocks because bonds have a stated interest payment attached to them that must be paid by the issuer or they go into default.
This seems to be a much more certain payment stream than stocks as shareholders only get a share of the firm's profits and there is no guarantee what these profits will be or when they will be paid out to shareholders in dividends. In addition, bonds are higher up in the capital structure than equities so if a firm gets in trouble, the bond holders are more likely to recoup a larger percentage of their investment than the equity investors below them.
But the great fear that all investors have, or should have, is how are their investments going to do if inflation comes roaring back. And the answer is, bonds do terribly with unexpected inflation.
Read the whole article and than please share your experiences and opinions.
John R. Talbott: The Ethical Investor: Wall Street Ripoff #6 - Telling You That Bonds Are Safer Than Equities
This seems to be a much more certain payment stream than stocks as shareholders only get a share of the firm's profits and there is no guarantee what these profits will be or when they will be paid out to shareholders in dividends. In addition, bonds are higher up in the capital structure than equities so if a firm gets in trouble, the bond holders are more likely to recoup a larger percentage of their investment than the equity investors below them.
But the great fear that all investors have, or should have, is how are their investments going to do if inflation comes roaring back. And the answer is, bonds do terribly with unexpected inflation.
Read the whole article and than please share your experiences and opinions.
John R. Talbott: The Ethical Investor: Wall Street Ripoff #6 - Telling You That Bonds Are Safer Than Equities
