Cumplimiento de los objetivos y de las competencias básicas

We just spent the previous chapter outlining why stocks, over the span of decades, tend to be the best asset class for long-term investors seeking to maximize their returns. At the very least, equities are one of the few assets that can consistently and significantly outpace the long-term ravages of inflation. So why does a long-term investor—especially a young one with a time horizon of potentially two decades or more—even need to consider fixed-income se- curities for his or her portfolio?

The answer is simple: Long-term gains are not the only measure of investing success. What good is it for an investor to become a success only at the tail end of an investing career while living through losses during his or her working life? And just because you’re a long-term investor in general does not mean thatallof your goals are technically long term in nature.

Consider the 60-something who is not only investing for retirement income a decade from now, but saving for a dream vacation in two years. Think about the 40-something who isn’t just preparing for his or her own retirement in 20 years, but the kid’s college bills seven years from now. Or the 30-something who

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can’t even fathom retirement since it’s so far down the road, but is thinking of saving to get married and to buy a first home five years into the future.

Even 20-somethings, who just entered the workforce, may need to put some of their money in a more reliable and stable asset class like bonds, if only to safeguard a portion of their overall assets—the portion they’ll need to fund immediate goals. Who knows—that 20-something may be thinking of going back to school to earn a master’s or law degree in two or three years. If that’s the case, putting 100 percent of one’s money in equities would seem to be risky, since money might well be needed to fully fund short- and intermediate- term needs. You’ll recall that over one-year periods of time, the odds of losing money in stocks is greater than one in four. Over three-year periods, it’s about one in seven. You have to ask yourself: Am I willing to bet my college money or my house money on those odds?

For these situations—and many others—the certainties and assurances that bonds can provide make them attractive alternatives to riskier stocks.

Let’s remember what a bond is: a loan that you provide to a government entity or corporation. This IOU, like any loan you’ve secured as a borrower, comes with contractual obligations that are clearly outlined for both parties. That contract—which is the bond itself—specifically states what annual in- terest rate you are to expect as compensation for the loan, how long the loan will last, and the exact date upon which you will receive your original loan principal back in full.

Unlike stocks, where the investor is part owner of the business, the rela- tionship you enter into as a bond investor is at arm’s length. Often, a bond investor couldn’t care less if the corporation whose debt he or she purchases winds up being the next Microsoft or just some other successful medium-sized company. As a lender, what you care most about is if the company is strong enough to fulfill the terms of the loan contract. Will it be able to pay you the interest rate it promised? Will it be successful enough over the life of the loan to return your principal investment when the bond matures?

To the extent that a bond investor wants to be assured of both of these facts, he or she will want to do some homework, just like a stock investor.

Like equity investors, bond investors have to consider the financial strengths and weaknesses of the underlying debtor, and, if dealing with cor- porate bonds, the industry the firm is in. And depending on the maturity of the bond, a prospective investor will probably also want to investigate the long- term business strategy of that firm. After all, if you’re thinking about buying a long-term loan that matures in 15 years, it would be prudent to analyze the odds that the company will survive for all 15 years.

Having said that, the threshold for success for a bond investor is generally much lower than the bar is set for equity investors. This is because for most

bond investors, the biggest concern is: Will my loan contract be honored? (To be fair, sophisticated and professional bond traders will also care about the business prospects for the underlying company, which we will get into at greater length shortly.) Stock investors, because they are owners and because they are interested in the long-term profitability of the company—not just its survival—have to be worried about a lot more than that.

The good news for bond investors is, once they undertake this basic re- search, the odds are substantially greater of finding some degree of capital preservation in the fixed-income market than in equities.