Who should buy long-term bonds?

According to conventional wisdom, long-term bonds are appropriate for conse rvative long-term investors. This paper develops a model of optimal consump tion and portfolio choice for infinite-lived investors with recursive utili ty who face stochastic interest rates, solves the model using an approximat e analytical method, and evaluates conventional wisdom. As risk aversion in creases, the myopic component of risky asset demand disappears bur the inte rtemporal hedging component does not. Conservative investors hold assets to hedge the risk that real interest rates will decline. Long-term inflation- indexed bonds are most suitable for this purpose, bur nominal bonds may? al so be used if inflation risk is low.