Income-producing investments should provide steady returns with low volatility. Let me show you what I mean.
In the chart below, I compare four bond funds: long-term Treasury bonds, investment-grade corporate bonds, high-yield corporate bonds and Build America Bonds. Each represents a different segment of the fixed-income market. I’ve also included the S&P500 to compare performance.
Look at the white Build America Bond line. It’s moving up at a 45-degree angle. That’s not too fast. It’s not too slow. In fact, it looks like a “goldilocks” investment that gives steady, sustainable returns.
While long-term Treasuries returned more than Build America Bonds over the past year (33% vs. 24%), it was a wild ride. They were 75% more volatile than Build America Bonds (21% vs. 12%).
That’s almost as volatile as the S&P500, which is ironic, since Treasuries are supposedly low-volatility investments.
What’s more, it turns out the steep gains long-term Treasuries made from August to October were unsustainable. The fund has traded sideways since then.
Meanwhile, the Build America Bonds fund has continued to march upward at a steady pace.
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If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.
Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”
But today, there is MORE than ample evidence that proves:
- The stock market is NOT perfectly efficient
- Passive investing can be MORE risky than active investing
You CAN beat the market… you just need to use the right strategy!