This article will attempt to weigh pros and cons of both equity and bond investments.

First the obvious statements: Equity always does best in the long run, due to increased yield (keeping up with inflation and such), where bonds only pay a fixed amount over a fixed time. Costs tend to be rather similar so having a flexible option that can go up tends to be better.

 

But there are other consideration, such as if you really want to own shares in a company that is highly affected by fickle leaders. On any given moment any world leader can make any sort of statement which will affect the value of your shares directly. Bond prices are also affected, but to much less degree. In fact, all investment prices are affected in one way or another, here we are discussing the severity of the effect. There are also bonds that vary yields based on things like inflation, offering more risk but also more potential rewards.

If you need to be able to access most of your money on a short term, you should not be buying anything anyway, because of the inherent risk. But let`s say that you do risk it: In such a case it would be extra risky in an market beset by volatility, where buying bonds would allow you to minimize such risk to a few percentage points. Most of the risk can be timed with central bankers` meetings; these decide interest rates, which in turn directly affects bond prices. After all, much of a bond price is how much more profitable it would be to receive the bond`s interest rate over that of a savings account. Bond transactions can take longer to fully process, so you might have to wait longer for your money to be returned to you.

Company equity is also affected by the interest rate, but more indirectly: If interest rate is low, people buy equity to get some sort of yield from their money, where a high interest rate offers them a sufficient return*.

There also is the question of dividend: During uncertain times it is possible for companies to reduce their dividend, to increase cash reserves. Which is bad for investors, because cash reserves do not increase long term profitability, they just gather interest, where you could use it to buy more shares. Bonds tend to do better, especially when in fund form, because they are legally required to be paid and get preference when liquidation of the company is needed.

Funds group many bonds together, thereby reducing the risk of a single bond not performing. The same can of course be said for equity, except equity heavily focuses on interlinked types, such as a specific country based exchange or sector, thereby not reducing risk by that much.

 

So in short, if you believe there to be a risk or just to much movement, temporarily switching to bonds might be better than the possibly higher gains from equity. If you think it is fine, just buy stock.

 

*High rates tend to be set only with high inflation, so keeping it in a savings account might be lesser than equity because companies increase prices to match inflation, sometimes beyond it. Banks also have profit margins so you are likely to get an interest rate of less than inflation, thereby losing money.