Bonds Aren't the Safe Asset You Think: Why CLEC Doesn't Buy Long or Corporate Bonds

In 30 seconds: Most people think “if you fear volatility, add some bonds.” CLEC’s stance is the opposite — long-term Treasuries and corporate-bond funds are high-risk: they can fall harder than the index, rise slower than the index, and deliver low long-run returns. Only short-term bonds (maturing in 1–6 months, principal stable) are truly “cash-equivalent.” Treating long bonds as a safe asset puts something you think is safe — but which actually drops hard — into your portfolio. For the short-vs-long mechanics see 現金是空氣.¹

Three reasons bonds aren’t safe

James’s repeated core point (00434’s title says it outright):²

• They fall harder than the index: long-term bonds and corporate-bond funds can draw down more than the stock index when rates rise.
• They rise slower and return less: over the long run, bond annualized returns are far below the Nasdaq-100; in the name of “safety” you buy long-run underperformance.
• Corporate-bond funds add credit risk: not just rate risk but the issuer’s default risk too — which clusters at the tail of the credit loop.

The one exception is short-term bonds: maturing in 1, 3, or 6 months, with near-zero inflation/default risk over three months and principal guaranteed back, they serve as the cash position (BIL / SGOV / money-market funds). This is the same “short bond ≈ cash, long bond is a risky asset” point from 現金是空氣.¹

”With rates high, should I buy long bonds as a hedge?” — No

In 00438 a risk-averse student asked: with long-Treasury yields at record highs and high rates possibly persisting, won’t QQQ’s compounding be suppressed for a long time (like the flat US market of 1970–1985)? Should you buy some long-term Treasuries while bond prices are low? James answered on two levels:¹

• Don’t conclude from one period: “finding one black person and saying all of Europe is black” is bad reasoning. Stocks can rise strongly even in high-rate periods.
• Counterexamples (James’s spoken historical approximations — no deck to cross-check, for reference only): he cited two high-rate stretches — 1986–1989, policy rate up to ~9.85%, yet stocks still rose ~40% over three years (~11.8% annualized); 1993–2000, policy rate ~6.5%, market up ~6× over seven years (~32% annualized). So “high rates → buy long bonds to hedge” doesn’t hold.
• News is hindsight: market up → “economy’s good”; market down → “economy’s good, more hikes coming” — the same reason paired with opposite outcomes. Don’t follow the analysts’ narrative.¹

🔑 One line: the right response to fearing volatility isn’t “buy long bonds,” it’s raise your short-bond / cash position (see the retirement withdrawal tiers in 現金是空氣). If you truly can’t take any volatility, use fixed deposits and don’t invest — what you must avoid is bankruptcy, not chasing returns.

⚠️ The historical percentages here are James’s spoken long-term approximations with no corresponding deck to cross-check, and they’re sensitive to the window; educational reference only, not investment advice. Rates, taxes, and each country’s bond products differ greatly — judge for yourself.

Footnotes

1. CLEC James, long session 00438 “Bonds Equal High Risk; Long-Term Bonds and Corporate-Bond Funds Are Extremely Risky,” 2023-10-21, the high-rate hedging Q&A and historical counterexamples @19:00–25:30. No corresponding deck (the related 00439 “High Rates Are Normal; Bonds Are High Risk” had a recording failure and its deck isn’t in this repo). Transcript at raw/transcripts/長篇/00438…; percentages are spoken approximations. ↩ ↩² ↩³ ↩⁴

2. CLEC James, long session 00434 ”…Don’t Invest in Bonds; Bonds Lose More Than the Index and Rise Slower With Lower Returns,” 2023-09-23. Transcript at raw/transcripts/長篇/00434…. ↩