SAN DIEGO, December 01, 2017—Jon Luskin, MBA, CFP®, had his second academic paper, “Examining Total Portfolio Performance: U.S. Government Vs. Corporate Bonds,” published in the December 2017 issue of The Journal of Financial Planning.
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Luskin’s second paper explored how two types of commonly-used bonds – U.S. Treasury bonds and U.S. corporate bonds – can impact the performance of an investment portfolio.
Previous research on bonds focused on investment performance in insolation – comparing one type of bond to another type of bond, or one type of bond to stocks. This limited approach is rarely applicable. This is because – in practice – most investors pair bonds with stocks to create a diversified portfolio.
In pairing bond indices with stock indices, Luskin found that – before taxes – portfolios holding either type of bond performed similarly. So, while higher-paying corporate bonds earned investors more money in a vacuum, that wasn’t necessarily the case when those same higher-paying corporate bonds were paired with stocks to create a portfolio.
When you pair higher-paying (read riskier) corporate bonds with stocks, the advantage of higher-paying corporate bonds disappear. This is because the alternative – pairing U.S. government bonds with stocks – offered superior risk-adjusted investment returns, as shown by Luskin’s research.
“With more than one investing icon advocating for Treasuries over any other type debt – but without a comprehensive empirical analysis, I was curious to test the numbers myself. With the numbers successfully crunched and the results conclusive, I am confident that this information will help investors create the best portfolios,” said Luskin.
Read the paper in its entirety here: Examining Total Portfolio Performance: U.S. Government Vs. Corporate Bonds