Kroijer suggests for minimum risk seek out ...
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lowest risk asset you can possibly get your hands on, typically government bonds that are highly rated in your local currency, with a maturity that suits your investment horizons.
GeoffF100 wrote:An investment horizon of 1-3 years? That is very odd.
Rolling a three year ladder has a bond mature each year for three years, but that needn't be the final investment horizon - roll the maturing bonds proceeds each year into another 3 year bond (where if yields had risen so the newly purchased bond would pay higher interest) and that can be repeated/sustained to whatever mid to longer term horizon you desire. For instance held/rolled for 30 years/whatever and that likely would fair better (be safer) than buying the likes of a current 30 year index linked gilt, that with recent -1.86% real yields is destined to lose you 43% real - which is far from low risk.
A problem with UK index linked gilts is that demand isn't matched by supply. Around £500Bn value in issue, £30Bn - £40Bn new issues/year falls short relative to £1Tn of pension liabilities (or whatever the figures). Pension fund regulation forces pension funds to value holdings using the yield curve (have to buy Index Linked Gilts), which in turn pushes prices up, yields down, inducing pension funds having to buy even more, until we're at the present situation where a 30 year ILG will lose 43% of its value when held to maturity (pension funds have to pay 1.75 times present day money to match a liability to be paid in 30 years).
If pension regulations are changed or the Treasury up the production of new issues then that could see massive/rapid flight from Index Linked Gilts, and where a return to positive real yields would result in large price declines (that in turn might amplify the flight of money). Again not a small risk. Staying at and rolling the short dated end to whatever horizon using non government is potentially lower risk.
Kroijer's use of "typically government" - as being 'safe' increasingly is a historic relic of being low risk. Nowadays its higher risk. Since Obama also set a president to not always honour bond investors first, and permitted unions to have the first slice, so also have bonds in general become higher risk. Similarly in bailing out the bankers so their 'legal robbery' moved the liabilities for that over to states - such that historic security for savers/investors is no longer available. So where now in a daft situation of where corporate bonds are in effect perceived as being safer than Gilts.
Bankers should have been hung-drawn-quartered and their heads mounted on the Towers spikes as examples. Instead they were given golden handshakes for having set a president for future bankers to repeat the heads they win, tails the taxpayers bail them out win/win game-play. Gilts are far from low risk, the state can always 'tweak' inflation figures, or impose punitive taxation rates, or simply print more money (drive actual inflation). Currency (Pound, US$ which are in effect zero coupon instant redeemable Gilts/Treasuries) are equally highly unstable - no longer backed by anything finite and physical (such as gold), purely sustained via trust/faith (that could evaporate in a instant). The West is in effect bankrupt having lived the high life off Eastern debts. One day that debt may very well be called-in.