Question

Warren Buffett recently said it’s a 'terrible mistake' for long-term investors to be in bonds – why?

Answer 1

1.   It is terrible mistake for investors with long term horizons among them pension fund, college endowment and Saving minded individuals to measures their investment risk by their portfolio ratio of bond to stocks.
2.   Warren Buffet point is simple in the long run bond and by extension of other fixed income investment are actually riskier than stocks. Higher yield bonds are attractive because of their higher pay-outs. however this attractive looking promise of high interest always comes with higher risk.
3.   Warren Buffet made a bet that over the next 10 years a portfolio consisting of hedge fund would not be able to beat the S&P 500 index. Just because a bond is categorised as particularly safe by rating agency, that does not mean all credit risk are excluded.
4.   Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at later rate risk is the possibility that the objective won’t be attained. By that standard purportedly risk free long term bond in 2012 were for riskier investment than a long term investment in common stock. At that time even 1% annual risk of inflation 2012 to 2017 would decreased the purchasing power of government bonds.

Conclusion:-

Bonds can contribute to risk diversification, but careful selection is essential. Investors should pay particular attention to inflation and fundamental data on the issuers Business.