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Ahh, thank you. That helps a lot. I suppose it's interesting that the return from companies is even remotely comparable to the return from bonds. That's probabl

• iaw 3y ago
  Not dumb, this stuff isn't really taught unless you explicitly pursue it. One note: the return on some companies may be higher and others lower, the issue is that the risk for money in companies is higher. Very simplistic example: the US government can offer you a flat 5%, a company investment offers 10% half the time, 0% the other half. One is a sure thing, one is a gamble. The more the 'gamble' the more risk and that is a driving factor in investments. People are willing to take huge risks if the payoff is very large (Look at Michael Burry and the big short)
• gregw134 3y ago
  You can roughly calculate yield from a stock investment. If a stock has a P/E ratio of 20 (i.e. the value of all stocks issued is 20x its annual earnings), divide 72/20 to get a yield of 3.6%. If US government bonds offer 1% yield this stock looks like a deal, but when safer government bonds yield 4% this stock now looks unattractive. Of course this is a gross oversimplification: earnings can grow, stocks can pay dividends, companies can go bankrupt, and companies have to pay their own bondholders as well as stockholders. But hopefully it shows that a tradeoff between stocks and bonds does exist.
• rpep 3y ago
  Bonds are much less risky too. So when interest rates were low, it made sense for investors to put money into companies because with bonds you got a tiny return guaranteed vs a high risk but potentially large payoff. Now, bonds are guaranteeing a 5%+ return, so a non-profitable business is much less attractive as a proposition.