buying shares vs bonds

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Julian Schlotterer
Julian Schlotterer's picture
buying shares vs bonds

Hi Jason,

When considering buying a company's securities, aren't bonds a better investment than stocks? With bonds you're sure to get your money back, so what's the benefit of buying a stock? If you're going to buy an Apple stock for example it's not like you're going to use your voting rights.


Jason Pride
Jason Pride's picture

Hi Julian,

Bonds are relatively safe, but do not guarantee you will get your money back. There is always some risk of default, even for municipal bonds. Bonds will generally pay back the principal as well as interest slightly higher than the risk-free interest rate (the federal reserve rate). Stocks on the other hand pay back in two ways, through capital gains via increased stock prices or through dividends. Many stocks will see both. Stocks are riskier as they do not have any contractual obligation to pay and stockholders are last in line in the event of a liquidation. As a result of this higher risk stocks will pay out a higher return over time.