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April 02, 2012 at 08:49 AM
Burton Malkiel has just published his list of best and worst asset classes for investors, and bonds are at the bottom of the list.
“Bonds are the worst asset class for investors,” says Malkiel (left), the author of A Random Walk Down Wall Street, in an opinion piece published in late March in The Wall Street Journal. “Usually thought of as the safest of investments, they are anything but safe today. At a yield of 2.25%, the 10-year U.S. Treasury note is a sure loser.”
The Princeton economics professor reasons that even if the overall inflation rate is only 2.25% in the next 10 years, an investor who holds a 10-year Treasury until maturity will realize a zero real return after inflation. And if the investor sells prior to maturity, he warns, it will likely be for less than the face value of the note if the inflation rate rises.
So given the present outlook for a self-sustaining U.S. recovery tempered by rising gasoline prices and continued euro zone troubles, what is the best strategy for investors? Malkiel looks at three asset classes in reverse order, and after ranking bonds worst, he picks real estate as his No. 1 investment bet, followed by equities—emerging markets, especially —in second place.
“Real estate is a particularly attractive asset class,” Malkiel wrote, asserting that it will be one of the best investments over the next decade. “Investors who are currently renting the place in which they live should strongly consider buying.”
