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Taking The Long View On Bonds


Readers Report

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

President

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

Los Angeles


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