Bonds vs stocks: what you are actually choosing between
A bond promises you a known return and cannot give you more. A share promises nothing and has no ceiling.
Choose between them for a reason, rather than because one sounds safer.
How Bonds vs stocks: what you are actually choosing between works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
Volatile is not the same as risky
The jumpy line ends higher. The calm one quietly walks to zero. Volatility is what you feel; risk is what actually takes your money.
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Lender or owner. That is the whole distinction
Buy a bond and you have lent the company money. It owes you interest and your capital back, and it must pay you before shareholders get anything. Buy a share and you own a slice of the business, with a claim on whatever is left after everyone else has been paid, which in a bankruptcy is usually nothing.
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Which means the payoffs are shaped completely differently
The best case for a bond is that you get exactly what you were promised. There is no upside beyond it. The best case for a share is unbounded. In exchange, the worst case for a share is a total loss, and for a bond it is a partial recovery.
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Bonds are not automatically safe
Bond prices move inversely to interest rates, and long-dated bonds move violently. Investors who bought thirty-year government bonds for safety and then watched rates rise took losses that would embarrass an equity fund. Safety from default is not safety from price.
Duration is the number that matters. A duration of 8 means a 1% rise in rates cuts the price by roughly 8%.
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They are held together because they usually disagree
The classic portfolio holds both because they have historically moved differently: when growth disappoints, shares fall and high-quality bonds rise as rates are cut. That is the whole point of the pairing, and it is worth knowing that in an inflation shock they can fall together, which is exactly when you needed them not to.
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Choose by time horizon, not by temperament
Over long periods, shares have beaten bonds decisively, and the volatility that frightens people out of them is mostly noise to someone who will not need the money for twenty years. Over short periods, shares can halve. Match the asset to when you need the money, and the choice mostly makes itself.
You can say which you should hold for money you need in three years, and why.
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A bond promises you a known return and cannot give you more. A share promises nothing and has no ceiling.
Every one shows its exact method, and the circumstances in which it is wrong. Free, and no account to look.