TAKING THE LONG VIEW ON BONDS
In the article "Why bonds should get more respect" (Finance, Nov. 13), your reporter says: "Over the past 15 years, long-term government bonds have returned 12% and the Standard & Poor's 500-stock index 16%...." He failed to mention that the difference of 4% compounded for 15 years leaves you with 50% more money in the S&P account than in the bond account.
Oh, the joys of compounding.
J. Michael Cavitt, CFP
Cavitt Asset Management Inc.
Iowa City, Iowa
Christopher Farrell's commentary doesn't address investors with long-term horizons. The main value of long-term bonds is to the bond trader, as a play on interest rates for capital gains.
Quoting, as your writer did, a return of 11% on bonds in the 1990s is very misleading. That return includes a large capital-gain component due to falling interest rates--fine for the astute trader but of no value to the buy-and-hold investor. One can invest in a bond for either capital gain or for income, but not for both simultaneously.
William F. Hummel