Sharechat Logo

When bonds beat shares

By Neville Bennett

Friday 21st February 2003

Text too small?
Bonds outperformed shares on the London market over the past 16 years. Other things being equal, if an investor put, say, £1000 each into equities and bonds, the bond fund would now be greater.

That is significant as financial planners maintain a chant that equities are better performers in growing capital than fixed interest investments.

This often depends on carefully selected occasions. Yes, during the 1990s on the Dow and Nasdaq, though not on the NZSE40, not from 1986-2003 in London and not in the US from 1973-82.

It is difficult to make comparisons. Data on fixed interest is readily available for bonds and even for rates charged by solicitors on mortgages.

The greater problem is using share indices. Until recently there were no index funds, so investors could not buy the index.

Yet some people assume any share portfolio would have performed like the index. But that was impossible as no one could have bought the 40 largest shares and have changed their weighting each day.

Actually many portfolios were different and many investors were left with the Chases, Brierleys and Equiticorps that fell out of the index.

The index is composed of winners and does not correspond to the reality experienced by investors in the past.

So it remains difficult to compare returns, though less so in bear markets where equities wither and fixed interest produce steady returns.

Preserving steady returns on a stock of capital is crucial for the investor with responsibilities for goals in income, education, retirement and inheritance. And it is hard work and calls for great judgment.

The bear market calls also for vigilance. When the equity market is losing ground it is tempting to switch entirely to cash and fixed interest.

But as our survey showed (NBR, Oct 25), while the nominal returns were good after tax and inflation the real return was only 3-4%. Such a low yield could compromise goals.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Government package for commercial leases too little, too late
Concerns over Government’s intervention in commercial leases
Development Commitment to Bowen Campus Stage Two
Vista Group International Limited - Update on the impacts of COVID-19
AFT secures Maxigesic IV® distribution in four Western European countries and reports Australasian market share gains in COVID-19 medicines
Investore Property Limited (Investore) today announced its financial results for the twelve months ended 31 March 2020 (FY20).
Rabobank GDT Analysis - Event 261
SkyCity Entertainment Group Limited - Update on COVID-19 Impacts and Recent Trading
ANZ announces sale of UDC Finance
Foley Wines Limited Announces Harvest Result, Earnings Outlook and Development in Martinborough

IRG See IRG research reports