Equities (stocks) have greater risk than bonds because they represent the residual interest in a company after all other claims are paid. If a company goes bankrupt, short-term creditors such as employees and suppliers are first to be paid, followed by banks and other lenders, and only after those claims are settled are equity investors (owners) compensated. Given that there is greater risk, investors need an incentive to invest in equities.
This incentive comes in the form of higher returns. According to a study done by Dimson, Marsh and Staunton equity returns were higher than bond returns in each of the 17 countries studied over the 106-year period of the study.
A second reason to invest in equities is that they provide diversification. Even owning international equities provides a diversification benefit relative to a domestic-only equity portfolio. The benefits of diversification include higher average returns with lower average volatility (because some of the asset classes perform well when others are performing poorly, which smooths out the returns). When combined with other asset classes such as bonds, real estate or commodities the diversification benefits can be even greater.
Finally, equities are considered to offer protection against inflation. Although higher inflation often causes stock values to decline in the short term, over long time horizons equity returns have a positive relationship with inflation (equity returns are higher when inflation is higher). This is due partly to the fact that companies can increase prices in inflationary times, which in turn has the effect of increasing earnings. Bonds, by contrast, entail a fixed (nominal) contractual payment. The value of that fixed payment is eroded during inflationary times.