For long-term dollar-cost-averaging (DCA) savings programs, a portfolio of sovereign (government) bonds makes sense.
First, corporate bonds have historically failed to pay money back (defaulted) more than government bonds. Yes, defaults like Argentina were extreme, but there have been a larger number of corporate bond flame- outs.
Second, sovereign bonds have fewer components to analyze than corporates. Investing in sovereigns focuses on reported economic data like government spending, inflation, and interest rates. Corporate bond investors must pay attention to what is happening in government bonds, and equity components like sales, profit margins, debt levels, and corporate governance. It can get complicated.
Third, sovereign bonds can create portfolio with diverse APIs (annual percentage interest). Combing low US interest rates in about the 4 % range with Mexican and Brazilian bonds at about 9 % creates a dynamic portfolio.
Fourth, given government backing, sovereign bonds are an attractive form of collateral, especially for crypto investing.
The concern in sovereign investment is currency weakness. It doesn't matter how big an API is on Brazilian bonds, if the currency crashes, the return into USD goes down. But currencies are usually less volatile over time, and higher interest rates over time create a cushion against currency weakness.
Thus, long-term savings through consistent contributions to sovereign bonds make a lot of sense.
Stay tuned for the next part highlighting how to invest.
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