Should you follow the money into bonds?
Gary’s monthly column in The News Tribune was published today. It reviews cash flow into and out of mutual funds and what that tells us about investor psyche. Despite a rapid global stock market rally, dollars are still flooding out of stock funds and into bond funds. Investors lured by the returns of the past decade for bond funds may be disappointed going forward.
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Trimmed from the story was this quote from Ibbotson and Chen about performance expectations for stocks vs. bonds:
“stock returns over the past 40 years were virtually in line with the long-term historical average. On the other hand, bond returns were not only much higher than their historical averages, but also higher than their current yields. This high bond return is due to higher interest rates in the 1970s and a subsequent declining interest-rate environment. This scenario for bonds is very unlikely to repeat in the future, given today’s low-interest rate environment. Investors hoping that bonds will outperform in the coming years will likely be disappointed.”
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