Bonds vs. Stocks: A Look Closer

Under the current trading conditions, one wrong move could have far greater than intended consequences. It may not seem like it, but I'm a lot more conservative with cash lately. So, it's much more important to maximise my two cents in the market. It'll also often mean that if I'm investing a certain amount in Market A, I won't go ahead and match a similar contribution to Market B.

This restriction has been another blessing in disguise as it led me to see that if I had compared opportunities in both the stock and bond markets for two recent investments, my potential reward could be much, much greater at much, much less risk. It's now a question of building up good trading habits.

On Friday, I was researching some bonds and noticed that there are now AIG bonds on the market with an annual yield of over 20%. If I had looked at AIG from a macro level and compared both its stock and bond issues, I would have seen very obviously that the bond is potentially the better play. The US government owns 80% of AIG. It won’t go bankrupt any time soon. And at a yield of 20% in my IRA, that would have been an excellent play for a two year note, especially given the recent AIG reverse split fiasco. I'm keeping the second one a secret for now. Last time I told my friend about a stock I wanted to get into, he bought it up before I had a chance to build up a position myself. LOL.

So, next time, I need to compare not only Stock A vs. Stock B, but also Stock A vs. Stock B vs. any corresponding corporate bonds.