Stocks Are Hard To Beat

Abstract

If investors are risk-neutral, should they buy stocks or bonds? It depends, because of investor taxes. Tax rates and investment horizon will affect the preference. The tax advantages of common stock can make lower-yielding (before tax) common stock a better investment than higher-yielding debt. One definite conclusion is that the investment choice should be made on an after-tax basis, On an after-tax basis a common stock investment yielding less than debt might still be a more desirable investment.