The Goldilocks Investment

Income-producing investments should provide steady returnrns 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 returnrns.

While long-term Treasuries returnrned 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 turnrns 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. 

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.