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I have to agree here. However, I have something else to add. In this article, TMFOtter pooh-poohs the idea of diverisfication among financial instruments, among bonds vs. stocks. Why dismiss it so easily, since we're re-examining our strategies anyway?

To be sure, in a taxable account, the decision to own bonds has to be weighed carefully. The taxes on the interest are likely to reduce performance to an unacceptable level. But there are federal and municipal debts that are U.S. (but not necessarily state) tax-free. And there are certain times, such as at the end of a Fed tightening cycle (like the one that ended this past year) when bonds are a great buy. The classic case would be in the early '80s, when the Volcker Fed decided to start easing, and 30-year Treasuries started to come down from their 12% level. If you'd have bought bonds then and held them, you'd have beat the stock market all to pieces until the last few years, I believe. (Somebody check my figures on that one, though.) But the decision to buy bonds is very different from the decision to buy shares in a company.

Buying bonds is a macro-economic decision, not a micro-economic decision. What I mean by this is that, as long as you buy investment-grade bonds, as rated by the bond-rating services, you are not making your bond-purchasing decisions based on the individual issue or the company that issued it. You are making your purchase based on what you think interest rates for the whole country are going to do over your investment timeline. To my mind, this is no different from the decision that "company XYZ is going to do well over the next five year--I'll buy some shares". Instead you're saying "the economy is going to tank next year, companies earnings are going to suffer, which will bring down their share prices, and the Fed is going to lower rates--I'll buy some bonds".

Granted, this is over-simplified, and I hardly know all there is to know on the topic, but if Fools put 1/10th the effort they put into picking stocks into figuring out how to make money on bonds, maybe something good and useful might come out of it?
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