Reputedly, stocks offer more reward than bonds. Generally, that is the case, because stocks generally reprice inflation. But betting on a company’s stock versus its bond doesn’t always offer a better, long-term return. So here’s one example.
On 11/21/08, I bought WeyCo’s 7.85’s of '26 at 64.365 for a projected YTM of 13.1% when it matures in a couple more months on 07/01/26. On that same date of 11/21/08, WY closed at 31.67. But over the years, WY has paid divs. So it’s the adjusted price --which backs in divs–that matters, which would have been $6.60 on that day. With divs backed in, Weyco’s stock can be treated as a zero coupon bond. If its maturity date were today, at its likely closing price today of something close to $25.26, WY’s YTM to date would be an underwhelming 7.9%.
For sure, once taxes are considered, the diff between the two choices diminishes a bit (or a lot, depending on one’s tax situation, the type of account in which the two investments were held, etc.) But a substantial difference in achieved returns would still obtain.
The easy, fat money that could once have been made from buying one’s own individual bonds has now all but disappeared, and the easy, fat money presently offered by stocks might soon disappear as well (due to present macro-econ chaos), which is part of the reason why classic allocation schemes like 60/40 have proven to be so robust, no matter how much they might now be out of favor.
Yes, bonds tend to be an asset class most investors find difficult to make effective use of. If they do want to devote a portion of their portfolio to fixed-income instruments, they generally opt for buying bond funds, which isn’t a good idea, though not as bad as buying covered call ETFs, because both suffer from the same problem that whatever might be received in income can easily be more than lost in share price erosion, because neither matures. But buying individual bonds selectively and then holding them to maturity can avoid that problem.