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Sample Essay

Words 896

Rarely has the investment landscape been quite so unsettling. Stocks are still richly valued and volatile. Bonds, meanwhile, offer low yields — and substantial risk that, if interest rates rise, bondholders will take it in the neck. (Dan Akst, 2004)

To get a better chance at greater costs and benefits, without being worried about risk, stocks are generally the way to go. Remember that the possibility for high returns is greater with stocks but so is the possibility of losing money. (Investment Question, 1999-2004)

Money does not pay any interest whereas bonds are interest-bearing assets. There are benefits to holding money, but there are also costs the interest foregone by not holding an interest-bearing asset

Bond’s face value is returned to the investor at maturity. The guarantee of payback and all coupon payments relies solely on the ability of the borrower to generate enough cash flow to repay bondholders. For holding periods of 15-years and longer, the most terrible case return on large company stocks was always higher than the return on bills and bonds, even though the range between minimum and maximum was greater for stocks.  Further, the returns for the longer periods were never negative. One can easily conclude that anyone with an investment horizon of 15 years or longer will suffer an opportunity cost by investing in bonds

Stocks provide flexibility in cash handling in short intervals of time, whereas in case of fixed investments the cost versus the benefit is lower.

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