Date
29 May 2017
The bond market’s 40-year historical return of 7.5 percent can never be repeated, Bill Gross says. Photo: internet
The bond market’s 40-year historical return of 7.5 percent can never be repeated, Bill Gross says. Photo: internet

Why we should stay vigilant against high-yield products

Bond investor Bill Gross recently gave a grim picture of the potential return on investments in fixed-income products.

Gross warned investors in a straightforward way that the remarkable return seen in past decades won’t be possible on Earth any time soon.

If investors want, he said, they can try their luck on Mars.

The bond market rewarded investors with a 7.47 percent return on a compound basis over the past four decades, Gross said.

“In order to duplicate that number, yields would have to drop to -17 percent,” he said.

It’s rather unusual for a bond fund manager to say something so negative about the bond market.

No matter what the real intention of Gross is, his remarks highlight the simple fact that the current interest rate is abnormally low.

In this super-low-interest-rate environment, investors should resist the temptation to buy risky high-yielding products.

No matter how a financial product is structured, there is no free lunch.

Extra returns are only possible by exposing oneself to extra, sometimes hidden, risks.

This article appeared in the Hong Kong Economic Journal on June 7.

Translation by Raymond Tsoi

[Chinese version 中文版]

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FL

Columnist at the Hong Kong Economic Journal

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