Sunday, 30 June 2013

Safest long-term investment

An inflation-linked bond will therefore be the safest investment option for a long-term investor looking to limit the uncertainty associated with the future real value of his capital. 

The market for inflation-linked bonds 

The combination of a long investment horizon, no short-term liquidity needs and a patient owner generally make the fund well-suited to bearing different types of systematic risk.

 Experience from the financial crisis in 2008 showed, however, that in periods of financial instability we cannot count on the same level of liquidity in the market for inflation-linked bonds. Tradability in these situations is lower, and we therefore bear a higher liquidity risk than for investments in nominal government bonds. 

 Linkers may, however, have a role in the operational management of the fund when it is possible to secure an attractive real return and inflation expectations are considered moderate.

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