With the stock market up nearly 30% from it's lows only 3 months ago, many investors are speculating that it may now be time to consider investing in Bonds, which could pay off better then stocks int he long run. That's at least what some experts are saying. Me, on the other hand, disagree.
Bonds:
Bonds are still yielding extremely low rates of return compared to the past. The 10 year Treasury is paying just about 3.6%. That's not terrible, but you have to consider that inflation could easily reach 3.6% within the next year, and likely will go a bit higher than that. If inflation strikes like many experts think, we could see 10 year Treasuries paying over 6% easily, meaning those lowly 3.6% bonds you purchase today will be worth about 60% then. I, in fact, do like some of the more risky corporate bonds, where you can get a return as high as 10% on companies which really are not in that bad shape.
Stocks
Right Now, even though the market is up 30% from it's lows, I am still a stock guy. Although I do own some bonds, I believe that the stockmarket is the place to be. Why in the world would you buy a 3.6% Treasury bond that is locked in for 10 years, when you can buy a stock like Verizon (VZ) which has a 6.25% dividend, you can sell whenever you like, and will likely increase it's share price over the long run with or without inflation. If you are looking for the stable return of bonds, then buy some of the blue chip dividend stocks like Intel, BP, Pfizer, Bristol Myers Squibb, Altria, etc. You will get a pretty reliable stable return higher than 3.6% plus have the stock price gain to look forward to as well.
Conclusion:
Stocks are still an excellent buy. With the economy picking up finally, most dividend stocks which have yet to cut their dividends will likely be safe from here on out.
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