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Can holding debt make more sense than holding assets?

For debt, read ‘bonds’, because that is all they are. For assets read ‘equities’, because that is what you own when you hold ‘a piece of the equity’. These two claims on other people are the basic building blocks of asset allocation for long-term savers. Clear distinctions about how each behaves are essential for using them sensibly.

There is a lot of nonsense thinking about both types of claim. We shall no doubt see plenty more of it in 2007, first as the debate starts about asset allocation for the new National Pensions Savings Scheme (NPSS) and second as a consequence of reported deficits of occupational pension schemes. Sensible asset allocation matters a lot for individual investors at every level of income and wealth. If you hold any bond investments and you’re not sure how to answer the question I posed, read on.

Stuart Fowler on 12.29.06 @ 06:37 PM GMT [">more..]