Stocks tend to dominate financial headlines due to their volatility and potential for rapid gains or losses. But, bonds also play an important role by providing investors with stability and income. Both markets are large, and their size can change depending on the economy, interest rates and investor behavior. Knowing how money moves between stocks and bonds can help you make better choices about how to spread your investments. A financial advisor can help you build a balanced portfolio that fits your goals and comfort with risk.
Stock Market vs. Bond Market
Stock and bond markets each represent trillions of dollars in value, but the bond market is generally larger. This is particularly the case when considering global debt issued by governments, corporations and other entities. The market’s size reflects the role bonds play in funding both public and private sector activities.
In contrast, the stock market consists of ownership shares in publicly traded companies. While stocks tend to receive more media attention because of their growth potential and daily price fluctuations, bonds offer more stability and income generation. Bonds tend to appeal to risk-averse investors and retirees.
The growth of each market also reflects broader economic trends. Periods of strong corporate earnings and economic growth often favor stock market expansion, while times of uncertainty or rising interest rates can lead to increased bond issuance and investment.
Global Equity
The size difference reflects the broader use of bonds as a financing tool worldwide. Governments issue large amounts of debt to fund infrastructure, social programs and budget deficits. Corporations also tap the bond market for capital to expand operations, refinance existing debt and support new ventures. As a result, bonds account for a larger share of total global capital markets.
U.S. Equity
In the United States, the stock market is the largest and most liquid in the world. Per SIFMA, the combined market capitalization of U.S. stocks is approximately $49 trillion. This is almost four times as big as the next largest market, in the EU, and represents nearly 43% of the global total.
The U.S. bond market is even larger, with a total outstanding value of $55.3 trillion. This is twice the size of the EU’s market, and 39% of the world total.
Stock Market vs. Bond Market for Retirement Accounts
Most retirement accounts, such as 401(k)s, IRAs and pension plans, include a mix of both asset classes to balance growth and income. Stocks offer the potential for higher long-term returns, but come with greater risk. Bonds provide more predictable income and capital preservation, which becomes increasingly important as retirees draw down their savings.
The relative size of the bond market also reflects its role in retirement planning. As investors age, financial advisors often recommend shifting a portion of retirement portfolios into fixed-income securities to reduce volatility and secure steady income.
However, the exact allocation should be based on individual circumstances, including risk tolerance, retirement income needs and life expectancy.
Historical Shifts Between the Stock and Bond Markets
The relative size and prominence of the stock and bond markets have shifted over time in response to economic cycles, monetary policy and investor sentiment.
Historically, bonds dominated the financial landscape, especially in the early to mid-20th century. Governments and corporations relied heavily on debt financing. Many individual investors viewed bonds as safer, especially during uncertain times like the Great Depression and World War II.
The post-World War II economic expansion and the rise of publicly traded corporations gradually increased the importance of equities. By the 1980s and 1990s, robust corporate earnings, deregulation and technological innovation fueled a stock market boom. This drew more investors toward equities for their growth potential.
The introduction of retirement savings vehicles like 401(k) plans in the U.S. also encouraged equity investing. Employer-sponsored plans and mutual funds made stock ownership more accessible to average investors.
However, major financial crises — such as the dot-com crash of 2000 and the global financial crisis of 2008 — reminded investors of the risks inherent in equities. During these periods, demand for bonds surged as investors sought safety, temporarily enlarging the bond market relative to stocks.
More recently, the prolonged low-interest-rate environment following the 2008 crisis and the COVID-19 pandemic encouraged further growth in both markets. Ultra-low borrowing costs led to record bond issuance by governments and corporations, while technological advances and increased retail investor participation drove stock market growth.
Today, the balance between the stock and bond markets reflects a dynamic interplay between growth opportunities and risk management. While equities may capture headlines with their volatility and returns, bonds continue to serve as a cornerstone of capital markets and retirement planning.
Bottom Line
When comparing the size of the stock market vs. the bond market, bonds generally hold the edge in both the U.S. and globally. This underscores their vital role in financing and income generation across the economy. However, size alone shouldn’t dictate your investment strategy. Each asset class serves different purposes and offers distinct advantages and risks. A diversified portfolio that balances stocks and bonds can help you achieve long-term financial goals while managing market volatility.
Investment Planning Tips
- A financial advisor can help you manage risk for your portfolio. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to diversify your portfolio, here’s a roundup of 13 investments to consider.
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