Should Anyone Be Surprised that Government Bonds Might Not Be a Good Investment for the Next Few Years
Burton Malkiel, famous for having written a book titled A Random Walk Down Wall Street where he argues there’s no systematic way to beat the market, offered this big-picture advice for balancing an investment portfolio in yesterday’s Wall Street Journal…
Are we in an era now when many bondholders are likely to experience very unsatisfactory investment results? I think the answer is “yes” for many types of bonds—and that this will remain true for some time to come….So what are investors—especially retirees who seek steady income—to do? I think there are two reasonable strategies that investors should consider. The first is to look for bonds with moderate credit risk where the spreads over U.S. Treasury yields are generous. The second is to consider substituting a portfolio of dividend-paying blue chip stocks for a high-quality bond portfolio.Malkiel explains his point with some interesting back-of-the-envelope macroeconomics.
But at least with regard to his second option, the blue-chip stocks, isn’t he explaining something that’s readily obvious from the state of our political system, i.e. right now, so many units of government have been run so badly, it is going to be a while before they can raise the money to take care of their governing obligations and pay high-interest bond yields, meaning that (to borrow a juxtaposition from Justin) investing money in actual productive activities right now is a much better option than investing in the government’s ability to tax?