Two reminders of the age old debate over the merits of equities versus bonds emerged almost simultaneously in recent days. First, Warren Buffett argued in his latest annual letter that shares are not only a better investment than fixed income instruments but are also superior to gold, the darling of many seasoned investors.
Just as that was being digested, the Financial Times reported that the Ford Motor Company had decided to put 80 per cent of its pension plan assets into bonds, up from 45 per cent previously.
While Ford makes great cars, I believe they got this decision wrong. In doing so, they fell prey to the classic mistake that many investors make: basing decisions on recent past performance rather than a more balanced view of long-term history and a clear vision of the future. Although it’s easy to see why some investors might be tempted to go down Ford’s path, I’m betting that Mr Buffett will be proved correct. Continue reading »