Stocks vs. Bonds: Why and When?

by Jason Brady

Stocks Vs. Bonds: Why And When? Splash image

There are many different sources of information about the benefits and limitations of asset allocation.

Effectively, when individuals or professionals try to put together a portfolio, the question of “how much should I own of what?” is often a crucial first step. However, increasingly investors are focusing on goals beyond or in addition to total return. One of the tenets of modern portfolio theory (MPT) says that in a frictionless world (no taxes, transaction costs, etc.), investors shouldn’t care about the source of their return and that income (dividends, bond coupons, etc.) is the same

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Jason Brady is a portfolio manager and managing director with Thornburg Investment Management. He is author of “Income Investing: An Intelligent Approach to Profiting from Bonds, Stocks, and Money Markets” (McGraw Hill, 2012).


Patrick Roszel from Kansas posted about 1 year ago:

i liked the write up. While most of our members probably understood the basic concept, she got down to the nitty/gritty and it helps me to review it. Chasing yield even in the high yield end of the fixed income universe seems RISKY for a 78 year old every time uncle Ben speaks I come to the conclusion that we have a few more years to benefit as long as we are ready to change course when things change.

Thomas Wides from Ohio posted about 1 year ago:

Dividend producng stocks are many different animals. Utilities thrive on low interest and deflationary environment.Pharma is a growth area, staples seem to me to be good in a deflationary and oils in an inflationary. It seems as long as we have business cycles they tend to offset one another. My question is has the fed and ecb outlawed the cycle?

Thomas Hutchison from Virginia posted about 1 year ago:

The article is worth review. I cannot escape the sense that serious inflation is in our future with all the QEs, etc; the onlly question is how soon we must pay the piper.

James Bushnell from Florida posted about 1 year ago:

I have a number of muni bonds, bought years ago, that pay around 4%, and I will hold them to maturity. But I don't see any sense in buying new low-risk bonds like US Treasuries, as long as the yields are below the inflation rate. to what purpose? Currently you will lose purchasing power,and longer range inflation will kill their purchasing power when they mature. I didn't sell many of my stocks during the recent crash, and most came back nicely. But now I only buy stocks with a dividend higher than the inflation rate.

Harold Marrett from New York posted about 1 year ago:

I have 100 shares of stock in XYZ company bought at $100 per share. I have automatic reinvestment of my dividends. The company pays $1 in dividends. The price is automatically adjusted down by $1 so the price is now $99. Now I have 101 shares at $99 and $1 left over. After paying taxes I am worse off. Where is the dividend helping me?

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