My guess is that most investors don’t buy individual bonds. Other than CDs or Treasuries, they use a bond fund for the fixed-income portion of their portfolio, if they bother with that asset class at all. The pros and cons, the upsides and downsides, of owning bonds are well known. But permit me to talk about what might be some relevant facts.
On a ‘risk-adjusted’ basis, bonds (as an asset class) don’t offer less return than stocks (as an asset class), because the arbs would step in to correct the price-yield discrepancies. Said another way, on an ‘absolute-returns’ basis, bonds do offer less return, because they are less ‘risky’, where defining what is meant by ‘risky’ is a matter of endless debate that’s beyond my pay grade to settle. So let’s just say that the outcome of buying a bond is far more certain than the outcome of buying a stock, with this quirk.
Though both a bond and a stock can go to zero, stocks rarely do so. They might lose a lot of value and become penny stocks. But the old days of bonds going into Chapter 11 and coming out it with a reasonable workout are a thing of the past. If a bond you own defaults, you can expect to receive nothing except a court case that might take years to be settled.
To the upside, there really is a pretty low upper limit on how much money can be made from owing a bond. There have been a few times when I made as much as 100% from buying a bond. E.g., in 2003, buy XRX’s 8’s of '27 for 34 and be called in '17. But those types of high-yield opportunities rarely happen these days, whereas gains of 200%, 300%, or more are frequently possible with stocks. E.g., anyone who began edging into mining stocks a couple years ago is now sitting on those kinds of gains.
So why buy bonds? Because they can offer a low grief, low worry, low effort to park money. But that low grief and low effort comes at the cost of low returns. So this question has to be asked. “How low is the return offered by bonds in today’s interest-rate and creditworthiness environment?” Some poking around in the corporate bond market this morning and running scans suggests that nothing that isn’t obviously trash offers even as much money as inflation is robbing from us. YMMV, of course. But that’s my takeaway.