Did war bonds have better investment alternatives during WWII?

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In investing, its all about risk vs. reward. For that reason there's generally no such thing as the "best" investment. Different people have different investment goals.

US Savings bonds specifically have a reputation for being the world's safest possible investment, as they are backed by the longest-running sovereign government in the world, and at the time had only had minor technical defaults twice in 200 years*. One would imagine that was rather appealing to a lot of folks coming off of the Great Depression, where banks and companies were dropping like flies, taking their investors with them.

Of course due to that reputation, they don't have to offer a super competitive return. So if you don't mind the extra risk, you can always find a better return elsewhere than US Savings bonds. But if for you the alternative is keeping your life's savings in cash because it's the early 40's and you don't trust institutions, US Savings Bonds were a much better (both safer and better interest) investment than that.

The moral dimension of investing shouldn't be ignored either. There will likely be a world after we go, and it will tend to have more and better of things that we chose to invest in.

Most Americans at the time were not military age men. Investing money in the US government at the time was seen as a very real and effective way for men and women past military age (or otherwise ineligible) to contribute to the war effort, by allowing the government enough resources to keep the fighting men better fed and equipped.

* - In both of those cases, it was a refusal to redeem in gold, as the bonds initially stipulated, not a total default. There was a third incident in 1979 where the payments came late.

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The US savings bonds marketed as "war bonds" during World War II were the Series E bond, which guaranteed a return of 4% 2.9%.

Here is a table summarizing annual returns on stocks and bonds since 1928, based on Federal Reserve data. The S&P 500 was negative for the years 1939-1941, but increased roughly 20-35% per year in 1942-1945. Keep in mind that index funds were not yet available to retail investors, and this was not so long after the Great Depression had shown the general public the risks of the stock market. Based on the first census of stock ownership on the New York Stock Exchange taken in 1952, we can safely assume that no more than 4% of the US population at most owned stock during the war years.

So T series bonds may be a more relevant point of comparison. Yields on these bonds were over 4-5% in 1938-1940 but fell to -2% in 1941 and remained less then 4% than 2.9% for the rest of the war. So over the period of the war as a whole, the returns on E series bonds were higher lower.

In sum, I would say that from a purely financial perspective, E series "war bonds" would have been a reasonably attractive option, especially for the risk averse individual investor. However, as is typically true of bonds as an investment class, they would not bring long-term returns as high as a portfolio of stocks less attractive than T bonds or stocks.

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