Apple Stock vs. Apple Bonds: Which Is the Better Buy?

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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 and risk 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 usually fall. 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 circumstances 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. 

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