What is the least risky home for part of a portfolio?

[Sunny]

If concerned about a market collapse, what do the professionals do? They don't give their cash to other banks for a start. They go straight to Central Banks to park excess cash even if they are not getting a return. They also bail into short term Government securities. Usually either German or US. Therefore if you are genuinely concerned, I would suggest you do the same. A short term German bond is as good as any deposit account although there are of course risks however small.

Out of curioristy, why on earth would a fund need 5,955 bonds to achieve diversification? The trading and administration costs must be huge.

 

[Jim2007]

Hi Jim

Which line? Investing in short-term German bonds?

Irish debt! All through the crises they have held the opinion that Ireland was a solid investment opportunity.

You are missing the point entirely. He does not want to be taking any risk with this money.

Well that is simply not possible. There is no such think as a risk free investment.

In a sense, that is what Marc is proposing, but over 5,955 safe bonds, rather than just 10.

Your suggestion of 10 makes more sense to me.

Investing in bonds is actually very risky exercise mainly because people feel that bonds are save and fail to understand the true nature of the risks involved. Entire books have been written on the subject, but in short, unless you are primarily interested in income, can find an investment grade bond at a price that will deliver that return and are willing to hold it to maturity, you are probably better off to seek professional advice.

 

[Marc]

Brendan,

The goal is maximum capital protection is it not?

It's therefore impossible to defend a less diversified position against a more diversified position. As Harry Markowitz and Merton Miller both said "diversification is the only free lunch in investing"

ANY bank, country or corporation can default. More diversification equals less default risk all else being equal.

In terms of cost I am looking at TERs of 15 to 20 BPs
The tax differential is 10% the total return over the last decade approx 3% therefore tax differential approximate 30BPS. Tax saving therefore trumps cost.

Im also Investing globally with Euro currency hedge so the currency argument isnt valid.

You also seem to accept inflation as an acceptable risk for the " lowest possible risk investment" isn't this inconsistent?

Investors spend after tax and net of inflation returns. Therefore both must be considered in the capital preservation quest.

Therefore the lowest risk strategy that seeks to preserve capital in real terms wins.

QED