Is the long-term return in government bonds, negative or close to 0%?

[Daal]

I am not disagreeing with the idea that sovereign bonds can lose money. Obviously, there are risks associated with bonds, as any asset allocation study will be able to tell you.

My disagreement is simply with the idea that, in a scenario where you incur large losses in your local ccy govt bond portfolio, somehow you're going to be just fine holding stocks.

You are not going to be 'just fine' holding stocks, but looking at tail events such as Germany, Zimbabwe, Turkey, Brazil, Italy, Japan, and others, people were relatively much better off in stocks than in bonds. Big stock drawdowns occured but you made your money back at least (without having to wait forever). Real estate also.
Its about the resiliency of the asset. All I'm saying is that government bonds lack so much resilience (relative to other assets) while at the same time offering such paltry returns, it's not that hard for the asset class to have negative returns. But people are drawn to it due its stability. Maybe that's true in the US and a few other countries, but for the world as a whole, that stability is an illusion

 

[Sig]

I am not disagreeing with the idea that sovereign bonds can lose money. Obviously, there are risks associated with bonds, as any asset allocation study will be able to tell you.

My disagreement is simply with the idea that, in a scenario where you incur large losses in your local ccy govt bond portfolio, somehow you're going to be just fine holding stocks.

Exactly. If you'd held stocks in Uganda during the period when they defaulted, since that was raised as an example, you'd be impacted the same as if you'd held bonds.

 

[zdreg]

You are not going to be 'just fine' holding stocks, but looking at tail events such as Germany, Zimbabwe, Turkey, Brazil, Italy, Japan, and others, people were relatively much better off in stocks than in bonds. Big stock drawdowns occured but you made your money back at least (without having to wait forever). Real estate also.
Its about the resiliency of the asset. All I'm saying is that government bonds lack so much resilience (relative to other assets) while at the same time offering such paltry returns, it's not that hard for the asset class to have negative returns. But people are drawn to it due its stability. Maybe that's true in the US and a few other countries, but for the world as a whole, that stability is an illusion

government bonds are pieces of paper backed by other pieces of papers, fiat currencies.

 

[luisHK]

Exactly. If you'd held stocks in Uganda during the period when they defaulted, since that was raised as an example, you'd be impacted the same as if you'd held bonds.

You speak of the Uganda's debt crisis authoritatively, are you sure you know what happened to the local stock market around the time the country defaulted on its national debt or went into hyperinflation ?
Not that I know about it, but it makes sense that stocks recover faster as well as go up during high inflationary periods. How does one even recover from defaulted bonds (it desn't look great either for shareholders in bankrupt companies but the whole market is not going bankrupt in the case of bonds crashing) ?

 

[Martinghoul]

You are not going to be 'just fine' holding stocks, but looking at tail events such as Germany, Zimbabwe, Turkey, Brazil, Italy, Japan, and others, people were relatively much better off in stocks than in bonds. Big stock drawdowns occured but you made your money back at least (without having to wait forever). Real estate also.
Its about the resiliency of the asset. All I'm saying is that government bonds lack so much resilience (relative to other assets) while at the same time offering such paltry returns, it's not that hard for the asset class to have negative returns. But people are drawn to it due its stability. Maybe that's true in the US and a few other countries, but for the world as a whole, that stability is an illusion

This is a fallacy, IMHO...

You cannot argue about long-term "resilience" of stocks without performing an identical analysis for bonds and just relying on very long-term "smoothed" returns. If you want to argue in terms of resilience, you would have to examine periods of large drawdown and how the two asset classes performed specifically during those regimes.

 

[Martinghoul]

government bonds are pieces of paper backed by other pieces of papers, fiat currencies.

Who says? Govt bonds are backed by many things, including the central bank's gold reserves, the power of the govt to tax economic activity going fwd, military power, ect etc etc.

 

[Martinghoul]

You speak of the Uganda's debt crisis authoritatively, are you sure you know what happened to the local stock market around the time the country defaulted on its national debt or went into hyperinflation ?
Not that I know about it, but it makes sense that stocks recover faster as well as go up during high inflationary periods. How does one even recover from defaulted bonds (it desn't look great either for shareholders in bankrupt companies but the whole market is not going bankrupt in the case of bonds crashing) ?

Like I said, why do you have to rely on "gut feel"? You can easily examine a variety of precedent of various recency.

 

[Daal]

This is a fallacy, IMHO...

You cannot argue about long-term "resilience" of stocks without performing an identical analysis for bonds and just relying on very long-term "smoothed" returns. If you want to argue in terms of resilience, you would have to examine periods of large drawdown and how the two asset classes performed specifically during those regimes.

Look at the title of this thread, its ALL about the long-term returns. not 3 year periods, with mumbo jumbo statistical nonsense. I have presented my data. A selection of extremely biased to the upside data (mostly developed market and 'safe havens', lacking emerging markets in it) shows extremely troubling signs. adding other countries, is very likely to show negative returns (avg and median), so far all you have done is to say 'I have looked at a few cases', presented no data and make vague brash statements while presenting nothing, as you usually do

 

[luisHK]

there is a book which may prove useful: Triumph of the Optimists: 101 Years of Global Investment Returns

Thanks for the advice. Just checked it out online and will get this book.

 

[Martinghoul]

Look at the title of this thread, its ALL about the long-term returns. not 3 year periods, with mumbo jumbo statistical nonsense. I have presented my data. A selection of extremely biased to the upside data (mostly developed market and 'safe havens', lacking emerging markets in it) shows extremely troubling signs. adding other countries, is very likely to show negative returns (avg and median), so far all you have done is to say 'I have looked at a few cases', presented no data and make vague brash statements while presenting nothing, as you usually do

I have made a suggestion... It's quite easy to do the basic examination along the lines I have proposed.

I was curious whether you have the will necessary to look at cases that could invalidate your claim. I am kinda surprised that you didn't even ask what cases I was specifically referring to, so that you could examine them yourself, to determine whether your statement holds up.

At any rate, I am happy to leave things as they are. Best of luck!