First and foremost, bonds are much safer and secure than shares and bond prices are much more stable and boring. One of the main reason for this is that share prices move much more on speculation and market hype which is further increased by algorithm and computer trading. Bond are boring and boring is good. Excitement, stress and worry is good in gambling, not investing.

You don’t get rich from share dividends, you get rich from buying shares low and selling high. Everyone knows this, and everyone is trying to judge the market for the best returns. What this really means is your investment is much riskier and could rise by 50% or drop by 50% mostly driven based on speculation and popularity.

While with bonds there is also a price risk on the back of speculation and popularity however, the risk is much smaller. One of the biggest difference is, that the bond has an underlining intrinsic value. It has a maturity date when the face value of that bond must be paid back to the bondholders in addition to all the interest payments during the life of the bond. This tends to anchor the price of the bond and should provide much more stability.

In the unfortunate situation when a company completely fails – The share price would crash and be worth very little, if anything at all. The bond of the same company would also suffer and fall in price. However, as a bond owner you are a creditor and you are entitled to be one of the first in line for whatever money the company can generate. The bond holders also can under certain circumstance put the business into receivership to recover their principle or interest.