Even with 10-Year Treasury Yields Around 5%, I'd Still Rather Buy This S&P 500 Dividend Stock for Passive Income in September.
Bonds lock you in, while companies can grow their businesses over the long term.
Overview
Treasuries are considered safe because they are backed by the U.S. government. A "safe" 5% yield, which is where the 10-year Treasury is hovering around today, is pretty enticing if you are worried that stock prices are going to crater. However, bonds have a major shortfall for long-term investors. Here's why I'd rather own out-of-favor Hormel (NYSE: HRL) and its 5.6% yield.
To sum up the problem in one word: Inflation. A bond is a loan in which you provide capital and collect interest. But the deal is that when the loan matures, you get your principal back. Inflation will reduce the value of that cash, and the longer the bond, the worse the impact. Meanwhile, the interest you collect is locked in, so inflation slowly erodes the value of the interest you receive as well. Bonds can provide diversification to a portfolio, but they clearly have their own risks, too.
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Originally published at www.fool.com.