Bonds Top Long-Term Investment: Study

Answer this question: which one of the following had the highest return of investment for the past 20 years? A. An apartment unit in the Gangnam area. B. Workers household income. C. KOSPI index (investment in stocks). D. Corporate bonds

You might think the answer would be an apartment in Gangnam, but don’t be shocked. The answer is corporate bonds. Even more shocking is that household income of workers has grown faster than apartment unit prices in Gangnam for the last 20 years.

That is the result of research conducted by Shin Seong-ho, head of the Research Center of Dongbu Securities, who had worked as an investment analyst. Shin is well known for his predictions about the plunge in stock prices in early 2000, saying, “Now is the time for us to pack our bags and leave.”

A worker’s income increases faster than apartment prices in Gangnam –

Shin looked into the change in asset prices from January 1986 to October 2006 in data, including the housing market index of Kookmin Bank, consumer prices of the Korea National Statistical Office and workers’ household income.

Assets were divided into nine — houses across the country, houses in Seoul (including apartments, multi-family houses and single-unit houses), apartments nationwide, in Seoul and Gangnam, the KOSPI index, corporate bonds, consumer prices, and workers’ household income. Mr. Shin put January 1986 as 100 and compared the 20 years’ asset prices of the nine factors.

Corporate bonds grew the most, with a score of 998. If a person invested 100 won in a corporate bond 20 years ago, its asset price grew around 10 times to become 998 won in October 2006. The price is pre-tax and the bond’s credit rating is AA, appropriate for investment grade.

The return of investment of corporate bonds increased significantly due to multiplying compound interests.

Investment in stocks brought an investor a return of 8.5 times. Of course, it varies depending on stocks. But the return is that high when taking only the KOSPI index into account.

The asset price of workers’ average household incomes is 761. That means when a worker earned 100 won in 1986, now he or she earns 761 won.

Housing prices are varied. While apartment prices in the Gangnam area jumped as much as five times, the overall prices in the country, including apartments, multi-family and single-unit houses, grew only two times for the last 20 years.

ssoo@donga.com