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Here are some YTD bond fund results according to Morningstar:

Category average for ‘Government Long’, -2.71%
Least worst, -0.45%
Category average for ‘All Taxable’, 0.06%
Best, 1.70%
Category average for ‘High Yield’, 0.81%
Best, 1.70%
Category average for ‘Multi-Sector’, 0.40%
My results, 0.46%
Best, 1.10%.

As I’ve said before, all of bond investing consists of making one of two bets. Either you’re betting on the level/direction of interest-rates, or you’re betting on the level/direction of an issuer’s credit-worthiness. But as the Dalbar 20-year studies of investor behavior and results so clearly document, the ‘average’ fixed-income is so incredibly ill-prepared to put money to work that the SEC should bar them from participating in the game.
Average Barclays Average
Stock Aggregate Bond
SP500 Investor Results Bond Index Investor Results
20 year 7.81% 3.49% 6.50% 0.94%
10 year 2.92% 2.39% 5.78% 0.93%
5 year -0.25% -2.21% 6.50% 0.95%
3 year 14.11% 12.56% 6.77% 4.07%
1 year 2.12% -5.73% 7.84% 1.34%

(from p. 10, of 2012 QAIB, Adviser Edition)

Do the math. Over the past 20 years, the Barclays Aggregate Bond Index offered would-be bond investors an average yearly return of 6.50% (which still isn’t enough to overcome the effects of taxes and inflation). But the ‘average’ fixed-income investor achieved a mere 0.94% per year. In other words, due to their lack of skill, they managed to lose their purchasing-power at the rate of approximately -4% to -5% per year. They cannot be considered to be investors in any meaningful sense of the term. They’re just thrill-seeking gamblers, “willing to pay, in order to play”.

OTOH, the profits of winners depend on the losings of losers, because all of investing is less than zero-sum game (in effect, if not existentially). So the SEC should encourage those losers to keep coming to the securities casinos. Certainly, Wall Street does. ROTFL

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