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Stock Market News: Stay Informed About the Latest Market Developments and Trends

Investing begins by deciding how much money to allocate and to what asset class – whether that be term deposits, property, bonds, stocks, or precious metals. This process is called asset allocation.

Investing across a range of these asset classes helps diversify our portfolio.

Out of these assets, stocks and bonds are two of the most traded, available for purchase on multiple platforms, markets, and brokers.

Bonds are usually categorised as defensive assets with low-to-moderate risk profile. Stocks, on the other hand, are classed as growth assets with a higher risk profile.

Let’s examine further the characteristics of stocks and bonds and their differences.

Shares and Bonds

Investing in stocks and bonds need not be an either/or exercise: we’ve all been lectured on the benefits of diversification.

For instance, in 2017 Vanguard – a pioneer of ETF passive investing and one of the world’s largest investment firms – published a paper which found that for investors with broadly diversified portfolios, asset allocation was the ‘primary driver of return variability.’

Assessing the returns of more than 300 fund managers across 20 years, the study found that asset allocation was responsible for 90% of a diversified portfolio’s return patterns over time.

That means market timing and securities selection (identification of individual securities in a given asset class) together accounted for the remaining 10%.

What does this all mean?

Deciding on a mix of appropriate assets to invest in should be one of our first decisions as investors.

As chief investment officer of Mercer Australia Kylie Willment noted, asset allocation is ‘your single biggest decision you have to make as an investor.’

That’s why it could serve you well to learn about asset classes other than just shares. After all, a healthy portfolio may very well include both stocks and bonds.

That said, there could be those who don’t have a cash pile high enough to be spread across multiple asset classes and who wish to understand the differences between them before committing their money to a particular one.

But before we get into the details of stock and bond investments, here is a quick refresher on these common asset classes.

Breaking down stocks

The stocks of a company are traded through the buying and selling of shares.

When we hear the word ‘share’ bandied in a financial context, we don’t refer to kindergarten manners.

We refer to financial instruments with potential to generate wealth. We see shares as a line on a graph that – ideally – creeps higher.

And technically, we’re not wrong. Share prices fluctuate in the short-term but tend to appreciate over the long term.

But those kindergarten kids might be on to something as well…

See, when we buy a company’s shares, we are in fact buying part ownership of that company. So, we’re sharing their success: we’re getting a slice of their pizza.

Unfortunately, we’re also sharing their failures. If the pizza falls on the floor, we get nothing – even though we chipped in for it.

The trick is to invest in the companies that know how to hold a pizza box properly.

Bonds

Staying on this pizza metaphor, sometimes a company really wants to start catering, but they just don’t have the dough — pun completely intended.

In this case, they might issue a bond. This is a fixed income investment, where the investor lends money to an entity to borrow.

An interest rate is agreed upon, as well as a time frame within which the loaned funds must be returned. This is called the maturity date — and it has nothing to do with puberty.

Investors can use bonds to construct a well-rounded, secure portfolio, provided they make the right calls.

Australian Stock Market Today: Latest Updates

So, how do stocks and bonds compare as investments?

The brief answer lies with risk appetite and investment horizons.

Generally, bonds are considered low-risk investments while shares offer potential for higher returns but also higher risk.

The higher risk of shares translates, on average, to higher returns – investors expect higher returns for taking on higher risk.

The 2020 Vanguard Index Chart – which charts market returns for several asset classes over the 30 years from July 1990 to June 2020 – showed that $10,000 invested in Australian shares in 1990 became $130,457 in 2020.

As for Australian bonds, $10,000 invested in 1990 became $93,545 in 2020.

On average, Australian shares rose 9.6% per year during the period.

Australian bonds rose 7.9%.

Highlighting their greater volatility, the best year during the period for Australian shares saw gains of 30.3% but losses of 22% in their worst year.

In contrast, the best year for Australian bonds saw gains of 22.4% and losses of only 1.1% during the asset’s worst performing year.

Stocks are typically traded on various exchanges while bonds are usually sold over the counter, rather than in a centralised place.

The bond market is composed of longer-term borrowing or debt instruments than those that trade in the money market.

The bond market includes financial products like Treasury notes and bonds, corporate bonds, municipal bonds, mortgage securities, and federal agency debt.

Sometimes, these are called fixed-income instruments because they promise either a fixed stream of income or a stream of income determined according to a particular formula.

In practice, however, these formulas can result in a flow of income that is far from fixed.

What are the differences between the stock and bond market?

Mainly, risk.

Stock markets are more susceptible to geopolitical risks, currency risks, liquidity risks, and interest rate hike risks.

Bond markets, conversely, are more susceptible to inflation and interest rate risks. For instance, rising interest rates usually correlate with falling bond prices.

Stocks and Bonds News

Here at Fat Tail Daily, our job is to make sure our readers are given the right information and the right advice for investing in stocks and bonds.

And we don’t stop there.

Our editors and analysts will give you tips to navigate your way through everything from blue chips and small-caps, to dividends, tech stocks, mining shares and more.

With our advice and daily updates, you can grow your wisdom, your wealth and fine-tune your command of the stock market.

Check out our latest articles down below.

What’s Certain for Next Year

By Murray Dawes, Saturday, 30 December 2023

‘To be absolutely certain about something, one must know everything or nothing about it.’ They are the words of Henry Kissinger, who recently passed away. If there’s anything we have learnt from the last couple of years, it is that markets can make fools of us all. Trying to predict what markets will do over […]

What’s Not Priced In: 80% Off and No One Wants to Buy!

By Greg Canavan, Friday, 20 October 2023

In this week’s episode of What’s Not Priced In, we speak all things commodities with James Cooper. We discuss how this cycle is different to the secular bear market experienced in commodities from 2012–16. We focus specifically on the carnage in the junior mining sector. James explains why this sector is the area speculative investors should be looking at to position for big gains in the years ahead.

Age of the Stock Picker - Picking Stocks ASX

Three Charts That Show Stocks Could be a Buy

By Callum Newman, Wednesday, 18 October 2023

Make sure you keep an eye on BHP today. Australia’s biggest company released their quarterly production figures this morning. Plus, for further evidence of the robustness, take a look at America. Read on below…

closing bell logo

Closing Bell — How High Can Rates Go?

By Murray Dawes, Saturday, 07 October 2023

We don’t know how high US 10-year bond yields have to go before the economy cries uncle, but it can’t be that far off. Check out the Closing Bell video above where I set out all the key levels to watch going forward and show you different scenarios that could play out.

ASX:TLS stock prices news

Telstra ASX:TLS and TPG Telecom ASX:TPG Abandon Plan to Share Regional Mobile Networks

By Charlie Ormond, Monday, 14 August 2023

Telstra and TPG announced today that they will not appeal against the decision to block their regional network sharing deal MOCN which has been in flux since it was first penned in February last year.

ASX:BLD ticker

Boral [ASX:BLD] Shares Up 8.1% after Beating Profit Expectations

By Charlie Ormond, Thursday, 10 August 2023

Construction materials giant Boral posted strong earnings today, beating expectations as its price increases across the board translated into healthy books. Shares were up by 8.12% this afternoon.

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All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

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