When the stock market gets volatile as it has recently, investors often rely on bonds to play defense and provide downside protection. However, many bond investors today are getting a little worried. Bonds have been losing money.
The problem is we are now in a rising interest rate environment. For over 36 years we have been in a declining interest rate environment, resulting in a 36-year bull market in bonds. During this time bonds have done incredibly well, doing what they are supposed to do, provide principal protection and stable income, and huge bonus with capital appreciation. Bonds have been fantastic investments and they have been the primary, traditional vehicle for income-oriented investors.
In today’s market, many different types of bonds are losing money, even when you factor in the interest payments. And it could be this way for some time.
The chart below shows year-to-date total returns of some of the more traditional bond sectors – high yield, municipals, U.S. Treasury, and U.S. Corporate. Three out of the four have lost money in 2018. (as of 10/23/2018)
I compare these areas of the bond market to our own private lending fund, which has been an attractive investment for some of our income-oriented investors. This is not an apple-to-apples comparison (comparing
bonds to a private loan fund); however, both types of investments are designed to provide principal protection and stable income.
If you’re investing for income, you’re probably looking here.
If you’re investing for income, you’re probably not investing in index funds. Chances are you’re focused on one of the following categories: