Quora Answer: Are Tokenised Treasury Bonds Safer Than Tokenised Real Estate?

The following is my answer to a Quora question: “Are tokenised Treasury bonds safer than tokenised real estate, or does it just feel that way?”

The question itself is the problem since this is a false dichotomy.  Both sit on top of the same broken wrapper.  The underlying asset barely matters once you understand what that wrapper does.  A Treasury bond carries the full faith and credit of the United States government.  Real estate carries tenants, maintenance, and eviction risk.  On paper, tokenised Treasuries should feel safer.  That comparison only holds if tokenisation itself were a neutral, risk-free wrapper around whatever asset sits inside it.  It is not.  Tokenisation introduces its own independent layer of risk, sitting on top of the underlying asset, regardless of what that asset happens to be.

The Broken Link Problem

Real estate tokenisation failures throughout 2025 traced back to what legal analysts call a broken link.  The digital token and the legal Special Purpose Vehicle holding the actual property frequently failed to match.  If the smart contract does not programmatically enforce the rights described in the legal prospectus, the token represents nothing more than a digital promise with no binding claim behind it.  Platforms such as RealT and Lofty promised frictionless investing and passive rental income through 2024.  By early 2025, investors were losing everything.  Tenants were being evicted.  Token holders discovered they held no legal path to enforce repairs or intervene in management, because ownership was digital only, while the consequences landed in the physical world.  Many platforms structure ownership through an LLC or holding company, meaning the token represents a claim on that company, not the property itself, a legal distinction few buyers understand until it costs them everything.

Nothing about this failure mode is specific to real estate.  Swap the underlying asset for a Treasury bond, and the identical broken link exists.  A tokenised Treasury product only delivers a claim on that bond if the smart contract and the custodial legal structure bind together correctly.  Get that wrong, and a token representing “safe” government debt is as worthless as a token representing a slum property nobody can evict a tenant from.

Smart Contracts Do Not Care What They Are Tokenising

The DAO hack of 2016 remains the clearest illustration of this.  An attacker exploited a flaw in the smart contract code governing a decentralised investment fund, draining roughly US$50 million in Ether before anyone could stop it.  The underlying assets inside that fund were irrelevant to the exploit.  The vulnerability sat in the code itself.  Once a smart contract deploys, it is immutable.  Bugs cannot be patched after the fact.  If exploited, losses are frequently irreversible, a structural feature of the technology, not a flaw specific to any single asset class riding on top of it.

Oracle manipulation ranks as the second most damaging attack vector in blockchain finance as of early 2025, with total recoveries of stolen funds remaining below US$100 million.  Over 60% of new decentralised finance deployments still rely on single-source oracles, despite decentralised alternatives such as Chainlink already existing on the market.  An oracle feeding a smart contract false price data does not discriminate between an oracle reporting the value of a Manhattan condo and an oracle reporting the yield on a ten-year Treasury note.  Either one can be manipulated, and either manipulation produces the identical outcome: a smart contract executing against false information, with no human in the loop to catch it before the damage is done.

The Legal System Has Not Caught Up Either

The United Kingdom’s Property (Digital Assets etc) Act received Royal Assent on 2^nd December 2025, creating a new statutory category of personal property to give courts a framework for treating tokens as property at all.  The legislation avoids defining strict boundaries, leaving courts to build case law as disputes arise, an admission that the legal system is still improvising a response to a technology already managing billions of dollars in assets.  A smart contract may successfully transfer a controllable electronic record while the underlying transaction remains unenforceable for separate reasons: fraud, mistake, or unconscionability, none of which the code itself has any mechanism to detect or prevent.

Asking whether tokenised Treasuries are safer than tokenised real estate assumes the tokenisation layer is a fixed, reliable constant, and the only variable worth interrogating is the asset underneath it.  That assumption is false.  The tokenisation layer is the dominant source of risk in both cases: a broken link between token and legal title, an immutable smart contract that cannot be patched once a flaw is found, and an oracle infrastructure that remains, by its own industry’s admission, majority reliant on single points of failure.  A Treasury bond wrapped in a defective token is not safer than a defective token wrapped around a rental property.  It is the same defect, wearing a more respectable underlying asset.

The Verdict

The real question was never which asset class tokenises more safely.  It is whether the tokenisation infrastructure itself has matured enough to be trusted with either one.  Based on 2025’s own documented failures, the answer is no, and dressing that infrastructure up in government debt instead of real estate does not fix the wrapper.  It only makes the eventual loss feel more surprising to the people who assumed a Treasury bond could not possibly fail this way.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: What are the Ways to Invest Money in US Government Bonds at a Good Interest Rate?

The following is my answer to a Quora question: “What are the ways to invest money in US government bonds at a good interest rate?”

But why?  The US national debt has crossed US$36 trillion.  Approximately half of every annual budget deficit now goes toward interest expenses alone.  The Congressional Budget Office projects debt-to-GDP reaching 122% by 2034.  The US government spent US$1.1 trillion on interest payments in fiscal year 2025 — more than it spent on defence, more than Medicare, more than any single programme in the federal budget.

A sovereign spending half its deficit financing on interest costs is not AAA credit in any meaningful sense.  It is AAA credit by historical inertia and the absence of a better alternative — two very different things.  Moody’s downgraded the United States from AAA to Aa1 in May 2025.  The surprise was how long it took.

The dollar’s share of global foreign exchange reserves has fallen from 71% in 1999 to 56.3% in mid-2025.  That is fifteen percentage points of reserve share lost over twenty-five years.  Each percentage point represents central banks substituting something else — euros, yuan, gold, Singapore dollar — for Treasuries.  Each substitution marginally reduces external demand for US government debt and marginally increases the structural cost of financing the deficit.

The weaponisation of dollar assets in 2022 — freezing approximately US$300 billion in Russian sovereign reserves — sent an unambiguous signal to every non-aligned central bank globally: dollar holdings are a geopolitical liability, not merely a financial position.  The response has been consistent.  Central banks purchased over 1,000 tonnes of gold annually for three consecutive years.  Gold overtook US Treasuries in total central bank reserve holdings in early 2026.  The US government did not cause de-dollarisation.  It accelerated it.

German Bunds carry equivalent credit quality with euro exposure — a currency that is not subject to weaponisation risk and represents the world’s largest trading bloc.  Eurozone fiscal integration is deepening, expanding the depth and liquidity of European sovereign debt.

Singapore Government Securities yield 3.2% to 3.8% in a currency with a structural appreciation bias, AAA sovereign credit, and zero geopolitical risk attached to holding them. For any internationally mobile investor, Singapore dollar assets provide real returns that US dollar assets — subject to dollar depreciation — do not reliably deliver.

Norwegian Government Bonds offer AAA-rated sovereign debt from a country running a persistent fiscal surplus and managing the world’s largest sovereign wealth fund at approximately US$1.7 trillion.  Norway does not have a debt problem.  It has the opposite.

Australian Commonwealth Government Securities offer AA-rated sovereign debt in a commodity-linked currency with structural demand from Asian trading partners.  Australia’s fiscal position, while not pristine, is materially stronger than that of the United States.

Gold itself — not a bond, but the asset central banks are substituting for Treasuries — has appreciated from approximately US$1,800 per troy ounce in early 2022 to forecasts of US$5,400 to US$7,200 by end-2026 across major bank projections.  The structural floor is an institutional demand that does not respond to price.

The United States reports a GDP of approximately US$29 trillion.  This number is real.  It is also deeply misleading as a measure of economic health.  US GDP is approximately 77% services: financial services, healthcare, legal services, real estate transactions, and insurance dominate the composition.  These are not exports.  They cannot be shipped to Vietnam, sold to Indonesia, or deployed in a factory in Malaysia.  They measure Americans paying each other for intangible services — and count it as economic output equivalent to manufactured goods.

US manufacturing has declined from 28% of GDP in 1953 to under 11% today.  The US produced 40% of global manufacturing output in 1945.  It produces approximately 16% today.  China produces approximately 29%.  Manufacturing matters because it produces exportable goods, builds supply chain resilience, generates productivity growth through process innovation, and creates employment that sustains broad-based consumption.  Financial services GDP is largely non-tradeable, non-exportable, and entirely dependent on the reserve currency status, which makes New York the global financial clearing centre.

The US trade deficit in goods ran at approximately US$1.1 trillion in 2024.  The US imports the manufactured goods it no longer produces.  It pays for those imports partly by exporting financial services — and partly by issuing Treasuries that the world buys because the dollar remains the reserve currency.

The dollar reserve status funds the trade deficit, which reflects manufacturing hollowness, which requires reserve status to continue.  When reserve status erodes — as it demonstrably is — the funding cost rises, the trade deficit becomes harder to finance, and the GDP composition problem becomes a solvency problem in slow motion.

The investor who reads US GDP at US$29 trillion and concludes the economy is structurally sound is reading a document written by a country that counts its lawyers, its hospital administrators, and its derivatives traders as productive output — and has been reassuring itself with that document for thirty years while its factories relocated to Shenzhen.

Buy US Treasuries if the yield, duration, and currency exposure suit your specific portfolio.  They remain the world’s most liquid sovereign debt instrument — a genuine and meaningful advantage.  A 4.5% yield on the 10-year is not nothing.  But do not mistake liquidity for safety.  Do not mistake yield for value.  And do not mistake a US$29 trillion GDP built predominantly on services for the productive economic base of a country that can sustain indefinite deficit financing at current rates.  The world’s reserve managers have already stopped making those mistakes.  Retail investors are usually the last to receive the memo.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Macro-Economic Update for Q4 2021

This is a macro-economic updates for investment insight, for the month of October 2021. 

With regards the pandemic, the delta variant of Covid-19 is challenging the positive impact of vaccine rollout.  The concern is that the declining efficacy of vaccine suggests some form of social distancing might remain in place in the foreseeable future.  As a result, exposed workers continue to delay their return to the labour market, impacting supply chains. 

Although global economic slack has continued to recede since the 2^nd quarter, 2021, progress has been uneven, and much of Asia, excluding Japan, is lagging.  The pace of recovery is increasingly limited by the global labour shortage and supply chain bottlenecks.  As winter approaches, the energy challenge in Europe and China is another risk to global growth. 

The probability of quantitative easing tapering in November has increased as further progress in reducing unemployment has been achieved.  That Federal Reserve interest rates liftoff is likely to happen in the 1^st quarter, 2023.  The developed market monetary policy stance is shifting to normalisation, creating a divergence compared to Asia, excluding Japan. 

China’s regulatory changes and deleveraging policy are impacting multiple sectors including real estate.  While the objective is to reduce systemic risks and promote long term quality growth, short term activity could be impacted.  Together with the impacts from the ongoing energy shortage, the possibility of some policy easing to counter the downcycle is increasing. 

S&P 500 companies have produced stellar earnings results, beating analysts’ estimates.  Current relative valuation still favours equities over bonds and credits, while liquidity remains ample.  Looking ahead however, risks to equity outperformance are gradually emerging.  These risks include the energy shortage, and quantitative easing tapering, in the near term; as well as Covid-19 becoming endemic, and the labour market mismatch in the longer term.  Meanwhile, although the recent rebound in US Treasury yield has improved the investment value of US credit, the yield pickup from Asian credit is still sufficient to justify the relative overweight. 

In equities we the above-trend growth among major developed economies is expected to continue to at least the first half of 2022, supporting the momentum of upward earnings revisions in developed market equities.  However, risks to equity outperformance are also emerging.  The impact of regulatory changes and deleveraging in China continues to weigh on Asia, excluding Japan, equities performance.  As such, we are maintaining a neutral allocation to the region. 

Regarding investment-grade credit, US investment grade credit default rates remain below historical averages.  The recent rebound in Treasury yield has also improved its investment value.  Asian credit remains attractive with the spread pickup.  However, the potential contagion from China’s Evergrande situation could trigger risk-off sentiment over Asia, excluding Japan, credit.  This means we recommend a reduction to the relative overweight of Asian investment-grade credit to US investment-grade credit. 

On Treasuries, US Treasury yield climbed higher after the September Federal Reserve meeting.  The path to quantitative easing tapering remains on track and the expectation on future demand and supply conditions of Treasuries will continue to adjust, resulting in higher yields.

Quora Answer: Can a Small Company Issue Bonds?

The following is my answer to a Quora question: “Can a small company issue bonds?”

A small company could conceivably issues bonds, and there is nothing stopping it.  The issue here is whether those bonds would have any rating?  They are more likely to be junk status, and there is unlikely to be much demand for those bonds.  Since the intent is to raise funds, it would be more likely that the company arranges financing through the sale of an equity stake or from a loan.

Third Quarter 2021 Market Outlook: Navigating the Delta Wave without Losing the Plot

This report draws on analysis from our fund managers, simplified as far as the subject matter allows.  Market conditions this cycle remain unprecedented within living memory for most investors, and there is a considerable amount to weigh when balancing a portfolio through it.  I will not insult anyone’s intelligence by pretending otherwise.

The Delta Variant and What It Changes

The Delta variant now accounts for the overwhelming majority of new global cases.  Since the start of July 2021, the global effective reproduction number has sat above the 1.0 threshold and continued climbing, confirming that COVID-19 transmission has returned to exponential growth.  Economic recovery, however, remains highly policy-driven, and Delta is more likely to extend the timeline of reopening than to reverse it outright.  Critically, in countries with high vaccination rates, hospitalisation and fatality rates remain manageable compared to previous waves.  There is no credible reason to expect a return to the tight lockdowns of March and April 2020.  Governments are structurally incentivised toward gradual reopening even as case counts climb, because the fiscal and political cost of another full lockdown has become considerably higher than the cost of managing Delta in the open.

The Valuation Picture

Relative valuation continues to favour equities over bonds and credit, and that gap has widened on the back of lower Treasury yields and improving corporate earnings.  I expect this gap to narrow as the Federal Reserve turns hawkish on inflation and begins raising rates.  US inflation currently sits at 4.2%, more than double the Federal Reserve’s 2% target.  Every fund in our range underperformed its benchmark last quarter, driven by a rotation from growth into value stocks that will take time to unwind.  Since inception, however, every fund has still outperformed its respective benchmark, a direct result of maintaining a higher equity allocation through the cycle rather than flinching at quarterly noise.

Economic Recovery, Region by Region

Recovery remains on track across major economies, even as market expectations recalibrate from earlier, more elevated levels.  The services sector is recovering strongly at the global level, supported by eased social distancing, active policy support, and continued vaccine rollout.  Solid manufacturing activity should support strong growth for the remainder of the year, and inventory restocking, once supply-chain disruptions ease, will provide an additional tailwind.

China stands as the exception among major economies, given its strict provincial lockdowns wherever cases appear.  Hong Kong follows the same pattern.  China’s growth slowdown is eroding the first-mover advantage it built earlier in the pandemic cycle, though recent policy actions should ease some of that pressure.  The broader pattern holds regardless: countries with high vaccination rates will diverge clearly, in both economic performance and inflation trajectory, from countries with low vaccination rates.  Vaccination remains the single variable that matters most to the reopening timeline.

Inflation: Transitory, Not Structural

Inflationary pressure has receded over recent months and remains elevated in only a handful of countries.  In the United States, that pressure concentrates specifically in goods and services sensitive to COVID-19 and the reopening process itself, rather than broad-based structural inflation.  In China, producer price inflation has likely peaked as commodity prices stabilise, while consumer prices remain benign.  The anticipated rapid rise in inflation prints across major economies is most plausibly transitory rather than structural.

Corporate Earnings, and Why They Matter More Than the Headlines

The first-quarter 2021 earnings season closed strongly, with over 85% of S&P 500 constituents reporting an earnings surprise, and that momentum appears set to continue into the second quarter.  Among companies reporting so far, the average magnitude of surprise sits near 20%.  Announced share buybacks are already beating the trailing three-year average across US markets.  Together, these factors provide meaningful tailwinds for developed market equities in an environment still flush with liquidity.

Asian Equities: A More Complicated Picture

The outlook for Asian equities is considerably less rosy at present.  Chinese equities continue to soften under mounting regulatory scrutiny across key sectors, compounded by fears of cascading corporate debt defaults tied to the impending collapse of the Evergrande Group.  The ongoing structural reform of Chinese capital markets could prove positive over the long run, but investors are pricing in a materially higher near-term risk premium in the meantime.  Outside China, sentiment across major ASEAN markets, Singapore excepted, remains weighed down by renewed Delta infections layered onto relatively low vaccination rates.  Momentum in Taiwanese and Korean equities is also receding as the current upcycle in electronics and chip manufacturing becomes increasingly priced in.

Central Bank Policy: Still Accommodative, For Now

The current recovery remains highly policy-driven, and Delta continues to extend the reopening timeline while its uncertainty weighs on sentiment.  Policymakers will need to sustain accommodative policy for some time yet, with managing the eventual transition away from ultra-loose settings the market’s central preoccupation.  Jerome Hayden Powell, the sixteenth chair of the Federal Reserve, has reiterated that recent inflationary pressure is likely transitory, and confirmed the Fed will continue discussing tapering in upcoming meetings, with advance notice attached to any eventual decision.  The European Central Bank remains similarly dovish, with no sign of moderating its Pandemic Emergency Purchase Programme, and expects rates to hold at present or lower levels until inflation reaches 2% well within its two-to-three-year forecast horizon.

In Asia Pacific, the People’s Bank of China surprised markets with an unexpected cut to its reserve requirement ratio in July 2021, and future guidance is expected to skew dovish as recovery continues.  Beyond Delta and the idiosyncratic risks already noted across Asia and China, other systemic risks remain on our radar.  None of them, at present, appear sufficient to derail the broader direction of relative performance between equities and fixed income, or between developed markets and East Asia and emerging markets within equities themselves.

Fixed Income Positioning

Treasury yields have declined recently on reduced inflation compensation.  The eventual tapering path for asset purchases should dampen Treasury performance further.  With US investment-grade default rates sitting below historical averages, downside risk remains contained, though upside is similarly limited given tight spreads and high sensitivity to interest rate movement.  Asian credit looks comparatively more attractive, with spreads having widened while default risk remains stable, and spillover risk from certain distressed Chinese corporates appears contained rather than systemic.

Equity Positioning

Global equities should continue outperforming fixed income, led by developed markets.  Major central banks remain accommodative for now, and any tapering discussion appears well communicated in advance rather than sprung on markets.  In the United States, reported earnings and sales continue surprising to the upside with rising magnitude, and strong buyback activity provides an additional tailwind.  Within equities, I remain cautiously neutral on Asia, given China’s regulatory overhang and the low vaccination rates weighing on most ASEAN markets outside Singapore.

The Long View

Delta remains the central concern as governments adapt to living alongside an endemic virus rather than eliminating it.  Relative valuation continues to favour equities over bonds and credit, and that gap has widened as Treasury yields fall and earnings improve.  Agility in adding or trimming equity exposure during corrections, or for profit-taking, remains necessary to balance return potential against risk.  The very factors currently weighing on Asian equities may well provide the entry point the region needs.

Every investment in our range is made with a long-term outlook, and portfolio performance has delivered positive returns since inception despite short-term volatility.  Our Adventurous, Balanced, and Conservative Funds have remained overweight equities throughout the quarter, adding to that outperformance.  Global recovery continues to draw on the flood of liquidity from fiscal and monetary policy, and the lifting of lockdown restrictions worldwide remains broadly on track even after two months of rising Delta infections.  Further mutations may delay recovery.  They will not derail the reopening narrative outright.  Global and regional economies cannot afford to remain closed indefinitely, and every government involved knows it.

In Conversation with Iain McCombie, Baillie Gifford

Iain McCombie, sub-manager of the AIA Global Quality Growth Fund at Baillie Gifford, shared his perspective on stock selection, the macroeconomic backdrop, and short-term volatility.  On the advantage of a long-term growth thesis in the current cycle, McCombie’s central argument is that this year has made the case against market timing and economic forecasting better than any theoretical argument could.  Early 2021 saw “re-opening” stocks come into favour as investors bet on a sharp economic recovery, only for that enthusiasm to fade back toward defensive names once case counts spiked again.  Rather than attempt to call that pendulum swing, which he regards as close to impossible to do consistently, the Fund concentrates on owning a small number of exceptional growth businesses with structural advantages, differentiated cultures, and large addressable markets.  Positioning follows bottom-up stock selection reflecting where the most attractive growth opportunities sit on a five-to-ten-year view, with key themes spanning the climate and energy transition, innovative healthcare, and a new wave of technology companies offering what McCombie calls “scale as a service”, firms such as Amazon Web Services, Shopify, and Twilio, which lower the barriers to entrepreneurship by levelling the playing field between the largest and smallest players.

On the risks to that thesis, McCombie acknowledged that rising rates and inflation dominate market commentary, and for good reason: higher discount rates typically hurt growth equities disproportionately, given how much of their earnings sit further out on the horizon.  His counterargument rests on portfolio construction rather than macro prediction.  The Fund favours companies with strong balance sheets, net cash positions, genuine pricing power, and market leadership, citing subscription-based software businesses and firms such as Alibaba, Netflix, and Amazon, all of which have demonstrated that customers tolerate price increases when the product commands genuine loyalty.  McCombie describes the team as broadly unconcerned about a modest uptick in rates and inflation, on the basis that their focus sits a decade out rather than on the next earnings cycle.

On recent portfolio developments, healthcare emerges as the theme generating the most excitement internally, tied to the broader thesis that the 21st century may prove to be biology’s century as genetic-level disease analysis transforms medicine.  McCombie pointed to the 2020 COVID-19 vaccine race as the moment this potential entered public consciousness, noting that Moderna, which the Fund does not hold, needed only four days to develop its vaccine candidate, built on two days of genome sequencing work by Illumina, a long-standing Fund holding, followed by two further days for Moderna to apply its own technology. Alongside existing positions in Illumina, STAAR Surgical, and Denali Therapeutics, the Fund has taken a new stake in 10x Genomics, which builds instruments and consumables for single-cell analysis, and added to its holding in Exact Sciences, a molecular cancer diagnostics firm.  It also holds companies improving drug discovery efficiency, including Dassault Systèmes and Codexis.

On identifying quality growth across Asia’s idiosyncrasies, McCombie traced the Fund’s global outlook back to Baillie Gifford’s founding in 1908, noting that the firm’s very first investments were in Malaysian rubber plantations, made on a bet about the growth of the American car industry.  That global, open-minded posture, he argues, still shapes how the Fund approaches China today.  He is dismissive of the lazy comparisons that dominate Western coverage of Chinese technology, casting Alibaba as “the Amazon of China” or Meituan as “China’s Grubhub”, arguing these labels ignore both the scale differences between the two markets and the extent to which Chinese internet businesses are frequently leading on innovation rather than copying it. Baillie Gifford’s research process leans on decades of cultivated relationships spanning industry experts, market specialists, and academia, including a sponsorship of the University of Oxford’s China Centre and a relationship with Tsinghua University’s Computational Biology Department, alongside a growing Shanghai investment research office intended to deepen existing company relationships and sharpen the firm’s cultural lens on the region’s genuine pace of innovation.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: Who Buys Treasury Bonds, Even at Low Yields?

The following is my answer to a Quora question: “US Treasury bond rates are currently, as of June 2021, extremely low.  Who buys these bonds, and why?” 

Contrary to what most investors might think, institutions, major funds, and sovereign funds do not buy sovereign bonds for their yield in excess of inflation.  Rated sovereign bonds such as US Treasury bonds, represent safety and an ironclad guarantee.  They are bought to mitigate the risk of equities and other investments.  Rated sovereign bonds are meant to be a safety net.  In the event that the value of the rest of the portfolio is caught up by a market downturn, the value of rated sovereign bonds remain stable.  They also give a steady return on investment.  While that yield is low, it is still a return, which mitigates loss elsewhere in an investment portfolio.

The Appeal of Asian Bonds

Two quarters later, the Federal Reserve remains dovish on interest rates, despite the passage of a record stimulus package.  Because of the change of policy on the 2% inflation target, they have more leeway in policy.  The emphasis is on economic recovery, and less on inflationary fears.  Federal Reserve is committed to keeping policy rates on hold until the US labour market has achieved maximum employment, and inflation averages 2% over time.  This would imply that the US policy rate will stay at 0% to 0.25% until well into 2023.  10-year Treasury bond yield will likely be capped at 1% due to inflationary fears. 

For Asian bonds, growth outlook is supported by better management of the Covid-19 pandemic than in Europe and North America. Countries across the region will register positive growth as the region opens up faster than the rest of the world.  The subdued inflation and attractive yield differential between Asian sovereign bonds and US Treasuries make Asian debt instruments appealing.

Quora Answer: Why are Stocks & Bonds Considered Liquid Assets, but Houses are Not?

The following is my answer to a Quora question: “Why are stocks and bonds considered liquid assets, but houses are not?”

Liquid assets are defined as cash or cash equivalents on hand, or any assets that can be readily converted into cash.  Any asset readily convertible into cash is similar to cash itself, since it can be sold with little impact on its value.

Cash equivalents ordinarily refer to investments that have short-term maturities of less than 90 days.  They are considered liquid assets because they can be readily converted to cash.  Stocks and investment-grade bond, which are marketable securities; are considered liquid asset.  Many collective investment schemes, such as mutual funds, are considered liquid as well, since investors can sell their shares at any time and receive their money within days.  Some forms of insurance policies are also liquid.

Non-liquid assets are the opposite.  They are assets that are difficult to liquidate quickly.  This includes land and property investments.  They are considered non-liquid assets because it can take months for a person, or company, to receive cash from the sale.  Fixed deposits, endowment funds, and any form of investment with no ready secondary market is also illiquid.

Quora Answer: Are US Government Treasury Notes & Bonds a Good Investment in 2019?

The following is my answer to a Quora question: “Are US Government Treasury notes & bonds a good investment in 2019?”

That really depends.  They are extremely safe, and low risk. In that sense, they are very good.  The US is not going to collapse, or fall into default, anytime soon.  The US Dollar is the reserve currency in the world.  But by themselves, they are a terrible investment, since the yield is so low that it is well below the rate of inflation.  Thus, a portfolio consisting exclusively of US T-bills will be worth a lot less upon maturity.

Quora Answer: What is the Difference between a Bond Mutual Fund versus a Bond ETF?

The following is my answer to a Quora question: “What is the difference between a bond mutual fund versus a bond ETF, and which is a better investment?”

A bond fund, also known as a debt fund, is simply a fund that invests in bonds, or other debt securities.  Bond ETFs are simply exchange-traded funds that invest exclusively in bonds.  They are like bond mutual funds because they hold a portfolio of debt instruments.

Bond funds have a pool of capital, raised from investors.  The fund manager allocates the capital to various securities.  In contrast, a bond ETF tracks an index of bonds in order to match the returns from the underlying index.  Bond funds may buy from the issuer, over the counter, or from an exchange.  ETFs, as their name suggests, buy exclusively from an exchange.

A bond fund is not superior or inferior to a bond ETF.  They may invest in the same category of assets, but there are fundamentally different, to serve different investor needs.  People put money in a bond fund because they want their investment to be actively managed.  Bond funds offer more such options.  However, if you have a high volume of movement, then an ETF is better because it works through an exchange,

Bond ETFs are also more transparent, since you can see the holdings at any time.  For a bond fund, you will likely have to wait for the fund report to be released.  However, a bond fund works better for someone with a lower risk profile since there is always a secondary market for the fund.  You can sell the fund back to the fund issuer.  In the case of an ETF, you can only sell it on the market, and if there is no buyer, you are stuck with it.

Quora Answer: What is Warren Edward Buffet’s Opinion of Bonds in a Retirement Portfolio?

The following is my answer to a Quora question: “What is Warren Edward Buffet’s opinion of bonds in a retirement portfolio?”

On Monday, the 25^th February, Warren Edward Buffet gave a wide-ranging interview with CNBC, discussing his annual shareholding letter and investment outlook.  He said, “If I had a choice today for a 10-year purchase of a 10-year bond at whatever it is, or buying the S&P 500 and holding it for 10 years, I would buy the S&P in a second. Interest rates govern everything, and if there were a way to short 30-year bonds and own the S&P for 30 years, I would give you enormous odds that the S&P is going to beat 30-year bonds.”

On the 06^th May, in a second interview with CNBC to discuss why Berkshire Hathaway had US$110 billion cash on hand, he said, “I would much rather own many common stocks than bonds. We would much rather own the business of America than get a 3% for 30 years from the government.”  He also said, “Stocks actually, in many cases, look like perfectly intelligent investments.”

In none of these interviews was he talking about any retirement portfolio for individuals.  He was talking about Berkshire Hathaway’s bullishness on the US domestic business environment in light of reports of an economic slowdown.  He explained that he has that cash on hand for acquisition, but because they could find no value in the market, they bought back their own stock to shore up value.  This was after the massive Kraft-Heinze write down.

If you are asking about your own retirement portfolio, then what Warren Buffett thinks about it is irrelevant, since he operates on a different economy of scale.  That would be like a small fishing boat trying to cross the ocean with the cargo liners.  What would be a minor swell to the cargo liners would sink the fishing boat.  Depending on your investment horizon, meaning how close you are to retirement, the need for bonds differs.  If you are close to drawing down your retirement, then bonds are good in a volatile market to protect your nest egg.  If you have an extended horizon, then a weightage towards equities would be better.  If you have a low risk tolerance, then despite the investment horizon, bonds and debt instruments are better in this turbulent market.

Quora Answer: Should New Investor in Their 20s Have Bonds in Their Portfolio?

The following is my answer to a Quora question: “Should new investors, in their 20s, have bonds in their portfolio?”

It is a good practice to have bonds in your portfolio.  Debt instruments lower the overall risk of your portfolio, and stabilise it in the event that equities drop.  Equities have the potential to earn well, but they are more volatile.  Debt instruments, such as bonds, do not have as high a yield, but the value is stable because the yields are stable – they are fixed payments over specific periods of time.

Generally, for someone just building their portfolio, they need a balanced spread of investments.  I would recommend a 40% weightage to debt instruments, and 60% to equity instruments.  As they gain a measure of familiarity with the market, they can adjust the weightage according to the anticipated market conditions.

Quora Answer: Why are Bonds & Mortgage Rates Intertwined?

The following is my answer to a Quora question: “Why are bonds and mortgage rates intertwined?”

Both of them are debt instruments, the same class of assets, and both tend to attract the same category of investors.  When the market is turbulent, investors move to debt instruments, and this creates a demand for them.  And when the market is expanding, they lower their exposure to debt instruments in favour of equity.  Another reason is also because mortgages are consolidated, rated, packaged, and resold as bonds to investors.  In this sense, the mortgages are themselves bonds.

Quora Answer: Is It Possible to Get a Private Equity Firm or an Investment Bank in the USA to Invest US$6 Billion in My Company for Growth & Expansion?

The following is my answer to a Quora question: “Is it possible to get a private equity firm or an investment bank in the USA to invest US$6 billion in my company for growth and expansion?”

Theoretically, it could be possible to ask for, and even get such an amount.  However, the larger you ask for, the more you have to give back in terms of return.  There has to be some sort of justification for that level of investment.  This is highly unlikely.  Normally, investments of such scale involve strategic infrastructure.  For example, a project I was in involved the building of a smelter.  There was a need to build this because the country was exporting iron ore, but importing stainless steel.  We were looking at output and a market in the hundreds of millions of dollars per annum.  The project cost US$3 billion because it involved the building of two smelters, four power plants for the smelters, and an entire township to support this, in a developing country.

When it comes to projects of this scale, investment banks and private equity firms are not big enough.  They may give you US$100 million at the very most, but it would still take up a significant portion of their outlay, and they cannot afford that level of risk on their books.  Projects like this involve sovereign funds and export credit agencies.  They are broken up into manageable portions of between US$300 million to US$500 million, and given to different parties.  The entire project is then reinsured.  And you need to get governments involved.  The country this project is based in might even issue bonds for this, managed by an investment bank.

As you can see, if you are asking for that sort of money, it has to be a project like this, which may bring in many times the value, because every aspect of it can be monetised.  A company selling a product or service is highly unlikely to bring in that sort of return.  That application will likely fail risk assessment.