Stocks Vs Bonds – Which is a Better Investment?
Recently since the stock market has turned around a bit, we have been hearing the experts say that Bonds may be a better buy than stocks right now. I have to say that I respectfully disagree with their thinking. Ok, so Stocks have gone up over 30% since they bottomed back in March, however, Bonds are still paying extremely low interest rates. Here is my take on each:
The stock market is still undervalued in my opinion, especially if this recession has turned around, and will likely be over with come the 3rd quarter. Business’s are stripped down, and much more efficient than they were just 3-4 months ago. This means that once the economy completes it’s turn around, many companies will have higher profit margins. There are dozens of solid companies with safe dividends paying as much as 5-7% returns. This is not to mention the fact that the stocks themselves will increase in value most likely.
A ten year treasury bond is currently paying 3.6%. With inflation expected to rise, likely to the 5-6% range sometime by next year, these bonds will actually be losing money in a real sense. If inflation goes up only mildly to a 4% rate, than it is likely that the same 10 year treasury released next year will have a 6-7% coupon. Why buy bonds now, when you can wait till they yield more?
I would recommend buying high paying safe dividend stocks until we see where inflation is headed. Likely by next year, you will be able to sell those stocks for 30-50% more than what you paid, plus buy treasuries at that time that yield probably close to twice what they are yielding now. Don’t rush into anything, and diversify.