Bonds are institutional investors' playground. Why most private investors should avoid them

A reader who invests for the long term asks why he should hold bonds at all. He sees them described as indispensable in financial media and bank research, but has never bought a savings bond or another interest-bearing investment.

The response begins with a broader view of household wealth. Most people divide their assets among a pension fund, the third pillar and savings they invest themselves or with advisers. Some also own a home or less conventional assets such as art and classic cars. The relevant question is therefore not whether one individual account contains bonds, but what the entire portfolio already looks like.

Swiss pension funds generally have the risk and return profile of bonds because they can invest only a limited share of their members' assets in equities and other riskier investments. They credit retirement savings at an average rate of just 2% to 3%. The article describes those low returns as the price of the comprehensive-security mindset built into the pension system, and argues that the cost falls on individuals and society.

There is still an advantage to that conservative structure. Even if the stock market fell by 50% in a year, someone changing jobs could still transfer the full value of their retirement capital. For the author, however, that is precisely why investments under personal control should carry more risk.

In the third pillar, the author holds small amounts of gold, Bitcoin and emerging-market bonds, calling that segment the most attractive part of the bond universe. The rest goes into equities. Direct investments contain no bonds, and the author does not expect to buy any, leaving that role to the pension fund. The article says this division also makes tax sense, because interest income is taxed.