What does Dave have against investing in bonds?
Bonds are often stereotyped as safe investments with returns slightly lower than equities (stocks). This simply is not the case. Bonds, just like equities, are traded on the secondary market. This means the value of bonds goes up and down each day just like equities. The risk involved with bonds is not significantly lower than equities. In some cases, it is much higher. Bonds are debt instruments, used by companies to raise capital. The bond payments themselves are made by the companies and are dependent on the financial strength of the individual companies. Good companies can miss bond payments. Got any Service Merchandise bonds? Enron bonds? Secondly, the returns associated with bonds are not attractive compared to equities. If you must use them, Dave recommends using balanced mutual funds. Balanced mutual funds mix stocks and bonds inside of a mutual fund. You can study the track record of balanced mutual funds just like any other fund.
