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Archive for the ‘Marsh and Staunton’ Category

The truth about bonds

There was more interesting research out today from Dimson, Marsh and Staunton, the three London Business School academics who produce the annual Global Investment Returns Yearbook in conjunction with the Credit Suisse Research Institute. This has become established as the world’s most comprehensive database of asset class returns, covering as it does equities, bonds, cash, inflation and currencies for 19 countries from 1900 to the present day.

I will be publishing a more detailed review of this interesting study on the Independent Investor website shortly, but five points are worth highlighting here today. The main focus of the research this year is on Government bonds and the related issue of investors’ search for yield:

  • While investors look to fixed income as protection against the kind of severe losses (drawdown) which we all know characterise the equity market, history provides no assurance that this is a safe assumption. In fact, the LBS professors say, “historically bond market drawdowns have been larger and/or longer than for equities” (as anyone who remembers the period before 1980 will know from experience). US investors who bought bonds in December 1940 experienced a 67% loss in real terms on their investment over the next forty years and it was not until September 1991 – more than half a century later – that they finally became better off in real terms than they were at the outset. For UK investors who bought bonds at the peak in October 1946 their investment remained underwater for 47 years, thanks to the devestating losses produced by inflation. Read the rest of this entry »

Written by Jonathan Davis

February 28, 2011 at 5:11 PM