MutualFundWire.com: A Top Vanguard Economist Defends Bond Investing

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Friday, July 5, 2013

A Top Vanguard Economist Defends Bond Investing

Vanguard [profile] 's chief economist, Joe Davis, isn't buying into the hype about ditching Treasuries, Business Insider's Mamta Badkar wrote. Davis still owns Treasuries and claims that any balanced portfolio should have them. Davis said he was staying with Treasuries in March and continues to advocate holding Treasuries in a new webcast:

It was, one was just because interest rates are low does not mean that they have to rise tomorrow and, again, that was more than two years ago and so it’s taken some time for rates to rise, and who’s to say if they’re going to rise immediately the next two days, either?

Davis said low interest rates also meant lower return for bond portfolios over the next few years and a slightly higher expected return would do investors some good. He argues bonds are still necessary for investors seeking a less volatile asset class:

There was more risk of a one-year or one-month loss going forward than there had been over the past 30 or 40 years just because the low-income cushions in those portfolios…Finally, most importantly, and why I still own U.S. Treasury bonds as part of a broadly diversified portfolio, is that bonds are just inherently, as a broad asset class, less volatile than equities. Equities were down more than fixed income even though rising rates was the source of the concern, and so that’s just the broad tenet.