Equities...

When the Dow Jones index was at 9000, Warren Buffet made the comment that he would rather be in stocks at Dow 9000 than in bonds. In the long term equities would yield much more than fixed income. I listened to him and made a handsome profit from the US market. (Profit has been taken).

Which is why I'd like to get my clients to understand that bonds aren't always the so called "safest" way to invest. Assuming that Singapore has an inflation rate of 3%, perhaps bonds aren't the way to go. They're just a company borrowing money from the public in exchange for periodic interest payments. After which at the end of the term you will get back the price you paid for the bond. ie, it's like company X needs money to expand. Company X borrows $10,000 from Mr A for 5 years. Company X promises to pay Mr A $200 every year for the next 5 years. At the end of 5 years, company X will return the $10,000 to Mr X. Sounds like a good deal? It's actually like lending money to a friend. If he intends to default on the payments, what can you do? Even the biggest companies can default on payments. Usually the higher grade bonds have lower interest payments. ie, the coupon payments are lower. The lower grade bonds, ie from smaller less established companies, will have higher interest (coupon) payments, all else held equal. This is to entice the public to lend them money to grow. Government treasury bills are almost risk free. Thus their rates are very very low. Perhaps just enough to cover inflation.

However, even the best can default. I'd implore everyone to remember what happened to Lehhman Brother's minibonds.

Anyway, some clients like to see such graphs. http://www.fundsupermart.com/main/fundinfo/viewFund.svdo?sedolnumber=370093#perform

Note: Straight line is not always good. If inflation is higher than your investment returns you are actually eroding the value of your money.

The solution?
Economic cycles are becoming increasingly short. In the past, it took years to recover from the great depression. (in most countries it started in 1929 and only recovered in the 1940s) The war economy most probably was the savior. (How ironic). Today, there's a general consensus that a recession is typically 18-24 months. Governments around the world have learned from the lessons of the past and are more alert and enthusiastic about their role in employing monetary and fiscal policies to stabilise an economy.
Therefore the term "long term investing" isn't that "long term" anymore. Putting money to work in equities from reputable companies isn't going to hurt much more than the painful wait in bonds. If you have a time frame of 5 years, I'd say that's pretty long. I don't think SIA will fall and I think at today's market price of $13.50 it's going to go up more than a bond in 5 years.
For those who are adverse to individual stocks, there are unit trusts out there where you can place your money in geographical and industrial sectors. There are country specific funds from Singapore and China to name a few and there are technology funds which to me are going to get interesting due to the forcasted mobile internet craze. (Hey, I'm already eternally connected to the net via my phone).

Bottom line is this, if you want to increase the real value of your money, you have to be in an asset class that yields more than inflation. Many are out there keeping their money in bonds or even worse, in the bank which yields a meagre 0.125% interest per year. If you want to catch up with increasing prices (example increasing housing prices) then you have to INVEST! It's your only chance!

Bonds? Do reconsider...