Apple (AAPL) stock is one of the most talked-about securities in the world, and with good reason. It's consistently the most valuable company by market capitalization in the U.S. equity market. Apple has also become one of the largest bond issuers in the market, with dozens of bond offerings.
As a result, investors who are also Apple enthusiasts can purchase Apple stocks and bonds. But which option is better?
Key Takeaways
- Apple stock experiences much more volatility than the bonds Apple offers.
- Apple bonds don't offer a particularly compelling value, but they are arguably nearly as safe as any government bonds.
- Apple bonds have had a modest yield advantage in the past, but AAPL stock makes the better option for long-term total-return potential.
AAPL Stock vs. Apple Bonds: Which Is Better?
Every investor has their own specific goals andrisk tolerance. Apple stock has more to offer than its bonds. However, the stock also experiences much more volatility. That means that it isn't a good choice for those who want low-risk investments.
But what if you're not bound by a conservative investing strategy? Then it's likely that investing in Apple stock will bring you a better return than Apple's bonds.
Apple Bonds
In general, Apple bonds trade with very low yield spreads over comparable Treasurys supporting their creditworthiness. But it also means that the bonds have a high degree of interest-rate sensitivity. For those who hold the bonds until maturity, that isn't a problem—they ride out the interest rate fluctuations.
However, if you need to sell the bonds before they mature, you're exposed to interest risk. Federal Reserve actions or other factors tend to put pressure on the bond market in the short-term. For example, the long-running, low-interest-rate environment that followed the 2007 to 2008 financial meltdown eventually gave way to 2022 rate increases designed to halt inflation. As rates rise, the yields on bonds usuallyfall. So, if you buy an Apple bond that you have to sell before maturity, you might get stuck trying to unload them when higher Fed rates make your bonds less valuable.
As for choosing between Apple's long- and short-term bonds, the general rule of thumb is that longer-term bonds are better than shorter-term bonds when yields fall, and the opposite is true when yields rise. Additionally, investing in Apple's longer-term bonds requires confidence that the company will continue innovating and offering products that consumers want. Basically, you want the company to still be in business when your bond matures. Fortunately, Apple usually has enough cash on hand to make its odds of long-term survival high. This is likely true even if it falls behind the technology curve in the years ahead.
Apple Stock
At certain points in Apple's history, you'd get a better yield out of an Apple bond than you would from Apple stock's dividend yield, though it's important to remember that both yields change daily with price fluctuations.
This means that investors would tend to earn more income with bonds, but this comparison fails to account for the possibility of future dividend growth. It's likely that Apple will boost its dividend over time.
Also, an investor who owns Apple bonds doesn't participate in the company's earnings growth. As the company's earnings grow, it's might increase the dividends you earn from being a stockholder. Finally, AAPL stock is more easily traded than its bonds due to a more liquid market.
Together, these factors indicate that while Apple bonds have a modest yield advantage, AAPL stock makes the better option for long-term total return potential. Stocks also have the potential for dividend growth and give investors the ability to participate in the company's earnings growth.
The Bottom Line
For one of the world's largest companies, Apple stock has a history of volatility. From July 2015 to May 2016, it lost around 30% of its value. From March 2022 to June 2022, the stock's price dropped around 25%. Investors should consider this volatility when thinking about making a stock investment in Apple. This is even more true for those in or nearing retirement.
Frequently Asked Questions (FAQs)
Does Apple have bonds?
Yes, Apple offers bonds. The company has a history of issuing a variety of bonds to help fund various aspects of its business.
When should you buy stocks vs. bonds?
Generally speaking, stocks are better suited for those who are comfortable with risk. Bonds tend to be very safe and typically offer relatively low returns compared to the stock market.
The Balance does not provide tax, investment, or financial services or advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circ*mstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
FAQs
As MarketWatch has been reporting for some time, Apple's AAPL, +0.45% outstanding bonds are offering some of the juiciest yields seen in years with many even shorter-dated bonds offering yields of close to, or more than 5%. By comparison, the stock currently has a dividend yield of 0.47%.
Should I buy bonds instead of stocks? ›
Bond risks
U.S. Treasury bonds are generally more stable than stocks in the short term, but this lower risk typically translates to lower returns, as noted above. Treasury securities, such as government bonds, notes and bills, are virtually risk-free, as the U.S. government backs these instruments.
Are I bonds better than stocks? ›
The pros of investing in I-bonds
In fact, I-bonds often outperform many of the highest-performing stocks as well during inflationary periods. These Treasury-issued bonds generate high returns without all the risks of those other high-yielding investments because they're backed by the U.S. government.
Is it worth it to buy Apple stock? ›
Apple stock has been on a tear since it convinced investors it has a viable artificial intelligence strategy. It might not be time to load up on shares, at least if some cautious analysts are to be believed. Apple stock is up about 11% for the year to $215, with much of that gain coming since Monday's close.
Why buy Apple bonds? ›
And Apple's bonds are virtually risk-free. Some would say even less risky than US government bonds because of Apple's huge equity base and the continuing demand for all their products. That interest rate is the discount rate for the bond. In the case of the bond, the cash flows are known.
Which is more profitable stocks or bonds? ›
Stocks offer an opportunity for higher long-term returns compared with bonds but come with greater risk. Bonds are generally more stable than stocks but have provided lower long-term returns.
Are bonds a good investment in 2024? ›
Investment-grade corporate bonds remain attractive given their lower risk and relatively high yields. Long-term investors who can handle volatility might consider high-yield bonds and preferred securities, but we wouldn't suggest large positions in either.
What pays more stocks or bonds? ›
The historical returns for stocks have been between 8%-10% since 1928. The historical returns for bonds have been lower, between 4%-6% since 1928. 3 Over the past 30 years, stocks have returned an average of 11% annually; while bonds have returned just 5.6% per year, on average.
What is the downside of buying I bonds? ›
Variable interest rates are a risk you can't discount when you buy an I bond, and it's not like you can just sell the bond when the rate falls. You're locked in for the first year, unable to sell at all.
When to move from stocks to bonds? ›
During a bear market environment, bonds are typically viewed as safe investments. That's because when stock prices fall, bond prices tend to rise. When a bear market goes hand in hand with a recession, it's typical to see bond prices increasing and yields falling just before the recession reaches its deepest point.
The current price of #AAPL stock is $213.36. Mid-Year 2024: In the middle of 2024, Apple stock is expected to hit a ceiling of $237 based on analyses and AI predictions reported by various experts in the field. 2024 Year-End: At the end of 2024, AAPL stock may reach as high as $244.
What would $1000 invested in Apple in 1997 be worth today? ›
If you had invested $1,000 in Apple stock on Feb. 4, 1997, today, you would have $1,343,269. Likewise, if you had invested $1,000 in an index fund replicating Nasdaq, you would have $11,038. A similar $1,000 investment in an index fund that replicates the S&P 500 would be worth $6,140.
How much will Apple stock be worth in 10 years? ›
Apple Stock Price Prediction 2024-2030
| Year | Median Price Prediction | Potential Low |
|---|
| 2024 | $216 | $183 |
| 2025 | $237 | $199 |
| 2026 | $298 | $271 |
| 2030 | $561 | $460 |
May 10, 2024
Stocks offer ownership and dividends, volatile short-term but driven by long-term earnings growth. Bonds provide stable income, crucial for wealth protection, especially as financial goals approach, balancing diversified portfolios.
How safe are Apple bonds? ›
Getting paid for the risks one takes is a rule of thumb for investing. Unless, however, the company is Microsoft Corp. or Apple Inc., which have outstanding bonds that have been trading at negative spread levels to Treasurys, implying they're less risky than debt backed by the U.S. government.
What do Apple bonds pay? ›
Apple bonds are yielding more than 5%. The stock has a 0.5% dividend yield. - MarketWatch.
Should you buy bonds when interest rates are high? ›
Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.
Do stocks always outperform bonds? ›
Even over the longest investment horizons, there is a significant likelihood that bonds will outperform stocks. One of the most common charts in all of finance is the relative performance of stocks vs. bonds in the US in the long run. But as with all long-term historical data, there is a huge risk of survivorship bias.
What is the average return on bonds? ›
The bond market is a wide field, with many different categories of assets. In general, you can expect a return of between 4% and 5% if you invest in this market, but it will range based on what you purchase and how long you hold those assets.
Are bonds a good investment right now? ›
High-quality bond investments remain attractive. With yields on investment-grade-rated1 bonds still near 15-year highs,2 we believe investors should continue to consider intermediate- and longer-term bonds to lock in those high yields.
