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fixed income has out performed most asset classes over 10 yrs and have done very well since the high in rates in 1981.

Bingo. We are at the end of a 30+ year bull market in bonds. That's more than long enough for everyone to "know" that bonds are always a good, stable investment, throwing off a decent interest return with the occasional kicker of some growth if you bought at a discount to the face value.

I believe that bull market in bonds has come to an end. It HAS to have come to an end, as it has been driven by slowly but steadily falling interest rates. With real rates at zero (or even negative), there's nowhere left for rates to fall. If they can't fall further (and that might be a bit of an overstatement, as there is still a nominal percent or two left they could theoretically fall), they must then either remain steady or increase.

When - not if, but when - rates increase, bonds are going to get hammered. What happens to the value of a 30 year bond with a 3% coupon if (when) the yield required by investors rises to just 6%? It's down to less than 60% of it's face value. And at the 10% inflation mentioned up-thread, we're looking at a loss of over $6.5k for every $10k invested. That is simply huge and something that will likely never be recovered.

In comparison, that .25% from sitting in a bank savings account is looking positively stellar.

The other investing take-away is to only buy a bond you're willing to hold to maturity. At least you'll get your principal back. If the holder hasn't defaulted in the mean time.

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