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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75377  
Subject: Re: Thinking about retirement...plans Date: 1/31/2004 1:56 PM
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Therefore, since bonds can lose value/principle, IMHO, there is as much risk as equities. I'm sure Enron and WorldCom bonds looked good at one point. Underlying company went down, so did the value of the bonds.

Your argument seems to be just because there is risk in bonds, the risk is as great as in equities.

Nonesense!

Stock prices are far more volatile than bond prices. As long as the company doesn't default, it is paying dividends on its bonds in a quite predictable manner, whereas stock prices can go up or down based on investor sentiment and the anticipation of future profits or losses.

Even in the extreme case of a company going bankrupt, the bond holders are creditors with a claim against the company (typically after taxes, back wages, and secured loans), whereas the owners (stockholders) are dead last in getting any of the assets and, if the company owes more than it is worth, the shareholders will get nothing.

Generally, bondholders get a lower return than stockholders over the long run because owning a company's debt is usually less risky than owning that company.
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