Comments on: Historical returns from corporate bonds

By: The Investor

The Investor — Tue, 01 Sep 2009 15:32:35 +0000

Good point and I couldn’t agree more Niklas.

As I vaguely suggested in the first post in the series (partly on the back of reading Yale fund manager David Swenson’s findings on subject), corporate bonds are not investments I typically reach for.

I just wish government bonds looked cheaper at the moment because I know I’m taking a risk sitting them out at today’s prices.

By: Niklas Smith

Niklas Smith — Tue, 01 Sep 2009 10:12:53 +0000

Another point that comes out of these data is that if you want bonds you might as well buy safe government bonds (i.e. not Russian!) rather than corporate bonds. The higher risk of default does not seem to be compensated by higher return, and both gilts and Treasuries offer the possibility of index-linking.

By: The Investor

The Investor — Fri, 28 Aug 2009 06:32:56 +0000

Len, I think that’s a very good point about the bear market stretching back to 2000, that a lot of people forget. (I *cough* *cough* have written about it here though…) That said I don’t see why it should continue for another ten years – it might, naturally, but the fact gilts (and US treasuries) have beaten equities over 20 years shows we could potentially be near the end.

By: Len Penzo

Len Penzo — Thu, 27 Aug 2009 23:27:08 +0000

I don’t know if this makes me a contrarian, but I have a funny feeling that we in the US are smack dab in the middle of a secular bear market that started in 2000. In the US there have been three secular bear markets (1906-21, 29-49, and 66-82) where the Dow and S&P averaged annual returns of less than 2% over very long stretches of time.

I have a sneaking suspicion that there are still one or two bear traps ahead of us over the next five to ten years. While there will be plenty of buying opportunities ahead of us, the danger, of course, is getting caught in those traps.

That’s my $0.02 (0.12 pounds) after taxes,

Len

By: The Investor

The Investor — Thu, 27 Aug 2009 15:37:50 +0000

Thanks for your comments. I agree that bonds should underperform equities — that’s why I think it’s very interesting that over 20 years in the US (and in the UK, though I don’t show the 20 year data here) government bonds (treasuries in my table above, as you probably know) HAVE beaten equities.

Totally agree that this is very bullish for equities for the next ten years.

By: Brian

Brian — Thu, 27 Aug 2009 14:03:23 +0000

I would think that even 10 years is too short of a time period to compare these asset classes. Over 20 or 30 years, I would expect that bonds would almost always underperform stocks as an asset class.

And if mean reverting means anything, look for equites to bounce back in the future.