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In recent years, bonds have not been of interest, at least not to private investors. At low or even negative interest rates, they generated almost no income. With interest rates rising, this will become a problem again, and we remember Andre Costolani, who is said to have once said, “Sleep well with bonds, eat well with stocks.” Is this stock market wisdom wise or just original?
A bond, also known as a bond, is nothing more than a loan that you make to a company, except that it is publicly issued and traded on a stock exchange. When you buy bonds, you are giving money to the company; he pays a fixed interest rate for it.
For a company, stocks are equity and bonds are debt. This means that shareholders get nothing in the event of bankruptcy, while bondholders can hope to repay at least part of their loan. This is why bonds are considered safer than stocks. (Unless the debtor’s name is Credit Suisse. But that’s another story.)
When Kostolani, who was born in 1906 and died in 1999, created his sayings, there were almost no funds to invest in the masses. Therefore, his statement is outdated. So today we can say with confidence: sleep well with stocks, eat well with stocks.
We know that stocks can plummet. But when you buy shares in an equity fund, you are buying many different dividend stocks. If the share price falls sharply, the loss in value of the investment fund is limited. Often it is not noticeable at all. Or did the prices of Swiss stock-denominated funds plummet due to the CS debacle? I would skip it.
It’s the same with bond funds: with a large number of debtors, the owners of fund units hardly notice anything if one debtor becomes insolvent. But does it really make sense to place good bonds with a better credit rating in an investment fund when you know that stocks have always performed better than bonds in the long run?
So why are bond funds good? Admittedly, they are less prone to fluctuations than equity funds. However, this is only relevant in the short term. Anyone who will depend on money in a few years should leave it in the account.
From this point of view, the benefits of bond funds are questionable, at least for private investors. With a cash cushion for short-term desires and a broadly diversified stock fund for the future, you can sleep well and probably eat just as well.
Source: Blick
I am David Miller, a highly experienced news reporter and author for 24 Instant News. I specialize in opinion pieces and have written extensively on current events, politics, social issues, and more. My writing has been featured in major publications such as The New York Times, The Guardian, and BBC News. I strive to be fair-minded while also producing thought-provoking content that encourages readers to engage with the topics I discuss.
