Updated: May 10, 2021
"Siri, How big is the bond market compared to the stock market?"
“On average, the market for bonds has been 79% larger than the stock market over the last 25 years," Siri responds.
Hmmm, I did not realize that....maybe I should learn something about bonds.
Bonds come in all shapes and sizes.
There are literally over a million bonds from which to choose.
Bonds are like snowflakes, no two are ever the same.
Why are there so many bonds?
The simple answer is that there is a lot of debt in the world. In fact, for the US, roughly $50 trillion of this debt is available for investment. Your biggest borrower is the US federal government, followed by state and local governments.
Why are there so many individual bonds?
One of the big differences between stocks and bonds is the sheer number of individual bonds versus individual stocks. As a result, bonds ultimately serve a completely different set of investors' needs than stocks, and those needs can be pretty specific. But bonds are super solutions because they're building blocks, and each can be really specific, kind of like Legos. The problem is each block is really big (supersize big), but imagine if each block could be right-sized to meet your needs.
Most large bond investors are investing in bonds to solve their specific cash flow problem. Think about a pension fund that needs to pay out to their retirees a specific amount every month. Because of this need, these bond investors' demands ultimately drive the bond market to create various bonds with different maturity dates, coupons, and more.
Once individual investors have access to all of these bonds, they can construct their bond layer to meet their specific needs. With so many choices, each of us can construct our ideal bond portfolio that achieves our desired consistent income and defined payouts.
So, invest in the individual bond that's perfect for you or create a diversified basket that meets your particular needs.
Either way, you’re going to want to be a part of this.