The thing to look through is that bond returns can be volatile. 2022 was terrible for bonds. But generally bonds have lower returns than equities, but also lower volatility. It's just every so often the same bad thing hits both of them. If we were 2008, then *safe* government bonds (US Treasuries) did incredibly well. But you wouldn't have said that if you held Greek government bonds. Countries that control their own currencies can just print money to offset deficits, at the cost of a falling exchange rate/ higher inflation. Countries that borrow in a currency they don't control (like the Euro) can actually go bust and the outcome is pretty painful both for bond investors and citizens of that country. (I think Greece has defaulted 7 times in its history? I think Argentina has defaulted 7 times since 1945? _-- I'd have to check the exact numbers).I believe that because of Valuethinker’s excellent recommendations your portfolio performance could be better, and all of this over the years should help you to get a higher return.
Tax deferral can also be a very good cue for you, especially if you make sure you carry your portfolio for as many years as you imagine.
Edit: https://www.bogleheads.org/wiki/Calcula ... al_returns
But the real problem with bonds is a long term one - that, particularly after tax, returns don't beat inflation. That's why the suggestion that as you get closer to retirement, you increase the percentage of inflation-linked bonds in a portfolio. A pension (if inflation indexed) is essentially an inflation-linked annuity.
However the inflation-linked bond market is anything but universal and complete. US TIPS are pretty good. UK Index-linked gilts have perpetually low returns for structural reasons. Italy does them, I think? Germany does not? France does? if you are a EUR home currency investor, it's not an easy portfolio to construct. And ILBs are price volatile (more so than conventional bonds *I think*).
Statistics: Posted by Valuethinker — Thu Aug 29, 2024 8:19 am