Hey guys do you struggle to decide between stocks vs. bonds when you are about to invest. Well you have to ask yourself a simple question? Do you want to be an owner of a company or a liability to a company. If you own stocks you are a minority owner by holding a specific amount of shares in a public company. This also means that you shall have voting rights for major board approved and shareholder allowed company wide decisions every year. I recently received a proxy for a company and two of the board members where being either reelected or replaced from one day to the next, depending on the shareowners votes. I have also received a proxy for me to vote and asked to approve CEO compensation packages. Stocks can also give you a quarterly dividend if you select a company that returns earnings to shareholders. But if you don’t then you will have to depend only on capital appreciation by way of stock price. Always remember buy low to eventually sell high.
If you own bonds the company owes you a specific amount for a specific number of years. In addition to this total amount owed to you, the company shall pay you Semi-annual coupon aka return on your investment. The average amount of years for a bond is either 10 – 20 years, but I have come across a few bonds that the term is 40 years.
If the company goes bankrupt bondholders have priority for getting their money back before stockholders something you should consider if you are deciding between the two investments. The majority of the time though most stockholders will never see a dime in a company bankruptcy situation. This is a brief synopsis between what it means for you as an investor. But if you want a more in-depth financial analysis between current stocks and or bonds see the links below.
CNN Money Article: Here
CNN Money Article about investing in Apple Stocks or Bonds: Here
I tend to invest in these in the order listed below:
- Index Funds
- Mutual Funds (10+ years of history)
- Bond Funds (Monthly dividend)
- Dividend Paying Stocks (Quarterly Dividend)
- REIT’s
- Bonds (Series EE and II only, I have never bought an individual Bond)
So this is my preferred investing style, but as I get more comfortable with investing and my discretionary play money grows, I will take a chance with individual bonds one day. I have bond index funds and bond mutual funds that give me the diversification I need with bonds as of this moment. I understand and have heard that municipal bonds offer tax advantages and a reliable income stream for many retirees. This is another consideration for my future portfolio to help me retire early. As of right now I am ok with the index funds, mutual funds, stocks, and Reit’s that I own.
What do you think about stocks vs bonds? Which do you prefer to invest in?
Rich Uncle EL
The bondholders have priority over the stockholders unless the federal government is handling the bankruptcy and your company name is General Motors. I do agree that it is something to consider when buying stocks and bonds though.
What investment do you prefer? If stocks what are you eyeing right now? If bonds, what do you prefer corporate or muni's?
I like your priority system and follow it. I just do not like individual bonds and bonds generally as it is so hard to know when to get out these investments. Also, I also try to spread my investment between large, medium and small cap funds in the growth, value and blend categories.
Hey Steven I understand your concerns, but I tend to see investments as a long term. Also I use it as a way to diversify my portfolio. It can be a steady stream of income without the added risk. Thanks for the comment.