Stocks vs Bonds: Ownership Claims and Contractual Claims

Yes. Bond prices can fall when market rates rise or credit conditions worsen, and issuers can default on interest or principal. Selling before maturity can realize a gain or loss relative to the purchase price, and even holding to maturity does not protect against an issuer default.

No universal rule can determine that for every investor or period. Horizon matters, but so do valuation at the time of purchase, cash needs, diversification, risk capacity, taxes, and the specific instruments used. A long horizon widens the set of reasonable choices; it does not make one asset class automatically correct.

It depends on the specific instrument and the type of risk being asked about. A speculative, low-rated bond can be more volatile and more likely to default than a large, stable company's stock. The more useful question is not which asset class is riskier in general, but which specific risks, market risk, credit risk, rate risk, or liquidity risk, a given holding actually carries.

It is the single discount rate that makes the present value of all remaining payments equal the current price, expressed as an annual rate. Two assumptions sit inside it: that every payment is made in full and on time, and that each coupon received is reinvested at that same rate. Neither holds exactly. It remains the standard comparison figure because it summarizes price, coupon and time to maturity in one number, not because those assumptions are realistic.

No, and the difference is one of the more important ones. A conventional bond pays fixed nominal amounts, so higher inflation erodes their real value and yields typically rise to compensate, pushing existing bond prices down. Companies can, to varying degrees, raise prices, so equity cash flows have some capacity to grow with inflation. That capacity varies enormously by business, and rising inflation usually also raises the discount rate, which works against equity values at the same time.

A bond that gives the holder the right to convert into a set number of the issuer's shares. It pays interest and ranks ahead of equity like a bond, while carrying upside if the share price rises enough for conversion to be worthwhile. In exchange the coupon is typically lower than a comparable straight bond. It behaves more like a bond when the share price is far below the conversion level and more like equity when it is well above.

It removes the price risk, since the holder receives face value at maturity regardless of what happened to prices along the way, provided the issuer pays. What remains is reinvestment risk and opportunity cost: coupons received during a low-rate period are reinvested at lower rates, and a holder locked into an old coupon while rates rise is earning less than newly issued bonds pay. The loss is real even though it never appears as a realized price decline.

A fund has no maturity date. Individual bonds mature and return face value, which gives a holder a date on which price risk resolves. A fund continuously buys and sells to maintain its target maturity range, so there is no point at which the holder is made whole by the passage of time. In exchange the fund provides diversification across many issuers and daily liquidity, which an individual bond ladder achieves only with effort and size.

Only superficially. A dividend is discretionary and can be reduced or eliminated, while a coupon is a contractual obligation whose failure is a default. Dividend-paying shares still rank last in the capital structure and can fall substantially in price. The similarity that does exist is sensitivity to interest rates, since a steady income stream is valued against the alternatives, which is why income-oriented equities often trade with some rate sensitivity.