Various generations can testify about the worthiness of bonds - But can they still shine as bright

as they did in the past?

When our parents were children it was common that they would get Zero-Coupon-Bond-Certificates
for Christmas. The idea was to teach them that being patient and to wait for its maturity was the way
they would get the most return from. Bonds are the most old-fashioned way of investing and are still
all around, but nowadays there are more profitable ways to invest. Especially young people should not
invest in bonds. They can take greater risks and do not depend on those yields thanks to their usual
fixed salary.

$1 invested in stocks 50 years ago would have a value of $112 today, in comparison to a $24 return if
it would have been invested in bonds. Additionally average annual returns of stocks are continuously
higher than coupon rates. There is no profound financial understanding required to see which option is
more profitable and that the long term return, one of the main arguments of Bond Traders, is indeed
lower than on bonds. There is no denying the major volatility of stocks but neither is the fact that
young people tend to have less to loose and are often willing to take greater risks due to achieve even
greater results. When always playing it safe and being defensively-minded one is less likely to make it
far in life. That should not promote gambling but rather seeing the whole market growth instead of the
fluctuating diagrams.

Owning bonds is a way to diversify and therefore reduce the risk of your portfolio. When advancing in
age it is recommended to gradually increase the percentage of bonds in a portfolio to secure safe
returns as a form of retirement plan. This way of thinking is indeed built on short sighted calculations.
Buying a bond means being locked to it for the coupon period and subsequently being less liquid. If
bonds are sold before reaching maturity there is a likelihood, that their price on secondary markets are
lower than the principal. Depending on the strategy every individual pursues this lack of liquidity can
detain a future investment opportunity through unavailability of buying power.

There are more characteristics that make bonds a rather static investment. Firstly returns are generally
fixed and there is no profit-sharing. The corporation receiving the loan could make millions whilst the
investor only receives his poor coupon rate. Secondly bond certificates sometimes have a really high
face value which require higher sums of investment and make them less accessible for everybody.
Another counterargument appears once the money is being locked with the bond there is a danger of
inflation or even default. The secure way to prevent a default is to buy high rated bonds which only
pay yields around 2-3% which is barely more than an average inflation rate resulting a very low return
on investment after all.

Based on the mentioned facts it is not a good idea to invest in bonds as a young adult. In the long term
bonds have been outperformed by stocks continuously, lead to capital lockups and are a very static
investment method. In days gone by they were a good investment at any time given offering vast
yields up to 15% but these days they have transformed to an option for people heading right towards
retirement.