2 months I’ve come to think that stocks are a waste and that I should buy corporate bonds instead Reddit    

This will sure bring on criticism and that's exactly why I'm making this post. Still, please be nice. I'm also a noob, so don't just call out my idiocy without explanation. Thanks. 🙂 Also remember I'm talking about corporate bonds, not government bonds.

I'm invested in stocks, a serious chunk of my wealth is in stocks. Of course the point is to save up and also make some profits, but lately I've been thinking why we should choose stocks in the first place. In the end, it's just a share in someone else's company. Assuming I'm buying on the secondary market, I'm not providing direct benefit to the company itself, I'm only speculating on company's future. The profit I gain is a) through dividends, which are paid from the profits of the company for no effort on my side, and b) by selling the stock again. I know this is simplified, but that's what it is in practice. You already probably want to argue something like "you do deserve dividends because you bought the shares that once provided funding for the company at IPO or at another funding run at later stage in the past", but the price of those shares now is not what it was then. Share price provides value to the company in case they wanted to collect more funding by selling more shares, but that company generated the value of those shares mainly by itself, not by the investors (yes, investors give it value by desiring those shares, but they desire those shares because of the performance of said company). Basically, the way the general stock market functioning is, IMHO, not providing real value to the underlying market itself.

When I look at corporate bonds, they serve a specific purpose: investors lend money to a company to fund a project. The bonds are issued for that purpose and company promises some interest on that loan. At expiration date the loan is repaid back to the investor. Bonds can be resold and bought on a secondary market too, but the expiration date remains and the price is also easily determined.

So if I put it like that, stocks are like bonds without an expiration date; dividends are like interest payouts (if any). Price of bonds is easy to determine, but pricing shares is difficult and unpredictable. The benefit of bonds is straightforward, but stock value is beneficial only for a *potential* future share sell out, if that every happens again. Bonds also provide some guarantee of profit, while stocks can go up, down, or sideways. So why are stocks so damn popular? Shouldn't we prefer buying bonds? I mean, bonds actually provide value for both the company and the investor. Is it just our greed that we hope that our stocks will outperform bonds? World / broad market ETFs are so popular, because they diversify, lower risks, and still provide an average 8%-or-so p.a. profit. I regularly see bonds with >9% interest rates. Yes, broad market ETFs provide diversified portfolio, but that's diversified only to minimize risk because stocks can be so volatile. Given the fact that bonds promise profit by default, isn't the risk minimized even more that way? Bonds promise to be repaid at predetermined price, while nobody guarantees the price of a share. However, I understand bonds are probably not that liquid like shares are.

I don't get it. Bonds seem like the obvious choice for a sensible investor because you get a promise of profit on investment which can be demanded by law. Stocks don't promise anything. If a company performs poorly, you will lose on stocks, but they are still required to repay you what they promised you. Bonds provide real-world value for your money; stock price is only an estimate of company's worth partially based on non-tangible components like investor sentiment.

Based on what I've read here before, there are people that wanna say "business is business" or "don't bring ethics to business", or "for every buyer there's a seller". Albeit true, those statements only describe status quo and are not constructive. I get it that people want to buy stocks and therefore they are in high demand and therefore they are priced accordingly and whatever, but that doesn't explain why bonds are not sought after more as the general instrument for money saving and profit generation among personal finance and FIRE communities and alike.

Do I make sense?

submitted by /u/bremby
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