What is the primary risk associated with long-term bond investments, such as 20-year Treasury bonds?

Long-term bond investments, such as 20-year Treasury bonds, are primarily exposed to inflationary risk. This type of risk arises when the returns on the bonds do not keep pace with the rising cost of living. Over the long term, inflation can erode the purchasing power of the fixed interest payments that a bondholder receives. For example, if you lock in a fixed interest rate for 20 years, and inflation increases significantly during that time, the real value of those interest payments diminishes, making them less valuable in terms of what you can actually buy with them.

While other risks like default risk, liquidity risk, and market risk are relevant to different types of investments and market conditions, they are less pronounced for U.S. Treasury bonds, which are considered to have minimal default risk due to the government's backing. Liquidity risk is generally not a primary concern with Treasury bonds, as they are typically traded in large volumes and are easy to buy or sell. Market risk, while always present, especially in terms of bond price fluctuations due to interest rate changes, is secondary to the long-term impacts of inflation for a bondholder focused on a long investment horizon.