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.