Look, I get it. If you’d put all of your money into long-term Treasury bonds just before interest rates began the longest and steepest decline in U.S. history, you would have done really, really well. And if you had sold all of your stocks on Halloween in 2007 and put all of the money into Treasury bonds, today you could buy up all your neighbors and get rid of the icky ones. If this is how you make investment decisions, have a good life and Godspeed to you.
Now that the people with the infallible Ouija boards are gone, let’s talk. There are three different reasonable objectives for an investor. First, there is the preservation from loss of existing assets and wealth. Second, there is the generation of income to cover your lifestyle. Third, there is growth in the value of your assets and wealth. We’ll probably be referring to these three goals in many future lessons, and I’d like to use a handy acronym to help you remember them:
P – Preservation
I – Income
G – Growth
The acronym PIG should be easy to remember since it perfectly describes the person who wants
his investments to do all three. There is no such thing as a risk-free investment or investment portfolio. A sensible investor understands that these three objectives are in conflict with one another and that priorities have to be set.
So which of these three do bonds help achieve? Probably none of them. Which is a statement that certainly demands a lesson-long defense … later. In the meantime, please decide how you would personally rank these three objectives in importance.