Fixed-income investments are popular again, and 50 years of research favors U.S. long-term instruments
The first interesting finding is that U.S. long-term debt had the highest average annual return of any bond category over the long run. Most subcategories of bonds lined up in terms of having similar risk-reward profiles . International debt denominated in U.S. dollars, however, was an outlier at the low end of the spectrum. The average U.S. long-term-debt fund delivered an annualized return of 7.68% with annual volatility of 7.44%.
Next, we decided to examine the results during rising-rate environments. Not surprisingly, the results totally flip. Now, ultrashort-term U.S. debt is by far the best option. Ultrashort-term debt recorded an average annualized return of 4.20% with a minuscule volatility of 1.11% when the Federal Reserve was raising rates. It scored the highest average return out of all the options and the lowest volatility. You really cannot come close to beating ultrashort-term debt when rates are going up.
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