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📊 Real Returns: Cash vs Bonds (2015–2025)

Cash: ~-1.0% real | Short Bonds: ~0% | Intermediate Bonds: ~1.0% | Long Bonds: Negative

🔥 Key Insight: Long-duration bonds had negative returns despite higher yields, due to rate hikes and duration risk.

Cash vs. Bonds: A Decade of Real Returns and What It Means for Your Portfolio

Why Long Bonds Still Aren't the Right Place for Your Cash Allocation

📈 Historical Real Returns: Cash Deposits vs. Bonds (Australia, 2015–2025)

🔹 Cash Deposits

2015–2019: Term deposit rates ~2.0% to 3.0%, real return: ~0% to +0.5%
2020–2022: Rates fell to ~0.15%, inflation rose → real returns deeply negative
2023–2025: Deposit rates ~3.0%, inflation cooled → real return ~+0.5%
Average real return: -1.0%

🔹 Short- and Intermediate-Term Government Bonds

Short-Term Bonds: Nominal ~2.5%, Real ~0%
Intermediate Bonds: Nominal ~3.5%, Real ~1.0%

🔹 Long-Duration Bonds

Nominal Return (VBND.AX past 5 years): -1.15%
Real Return: Negative
Key Risk: High duration, high interest rate sensitivity

📊 Updated Return Summary (2015–2025)

Asset Class	Nominal Return (Avg)	Inflation (Avg)	Real Return (Avg)	Volatility	Duration Risk
Cash Deposits	~1.5%	~2.5%	-1.0%	Very low	None
Short-Term Govt Bonds	~2.5%	~2.5%	~0.0%	Low	Low
Intermediate Bonds	~3.5%	~2.5%	~1.0%	Moderate	Moderate
Long-Term Govt Bonds	~2.5%	~2.5%	0.0% or lower	High	High

📉 Why Long Bonds Still Don’t Belong in Your "Cash" Bucket

    ❌ Poor Returns in Practice: VBND and similar long bond funds had negative returns, failing to preserve capital in real terms.
  

❓ So Why Even Hold Long Bonds?

You expect a recession and declining rates
You want to hedge against equity drawdowns
You have long-term liabilities (e.g. pensions)

But for most investors' cash allocation, long bonds are a poor fit.

📅 Recommended Allocation for Cash Component

Time Horizon	Instrument	Rationale
0–3 months	High-yield savings / money market	Capital preservation, liquidity
3–12 months	Term deposits / short bond ETFs	Higher yield, minimal risk
1–3 years	Laddered short/intermediate bonds	Balanced yield and risk
3+ years (optional)	Long bonds (small tactical position)	Only if expecting rate declines

💡 Final Thoughts

Yes, rates are up from pandemic-era lows — but still below long-term averages. This makes long bonds a weak case for long-term investing unless you're betting on a policy reversal or economic slowdown.

Conclusion: Use long bonds strategically, not as your portfolio's core cash or defensive anchor.

Need information on the performance of listed bonds and bond funds?. FinSight Investment Assistant will provide the historic data and insights you need to assist with your optimal portfolio construction.