Stay Far Away From These Investments

It's easy to get caught up in investing minutia, rather than concentrating on what really matters. Consider the following commentary, from Morningstar on Jeff Gundlach's DoubleLine bond fund. Morningstar praises Mr. Gundlach's deep experience and his strong record while also noting that his firm refuses to disclose their proprietary investment criteria. You'd think from those comments that his results must be superior. In fact, his flagship funds the DoubleLine Total Return Bond Fund and DoubleLine Core fixed Income were quite mediocre over the most recent one, three and five year periods. The total return fund lagged the reference index over each of those time horizons. DBLTX also failed to best the equivalent bond fund category. The core fixed income fund flirted with neutral over one, three and five-year periods vs. those same benchmarks. Those facts are minutia, though, when thinking about whether they were good, or poor choices for investors' capital. In the five years ended a week ago today, their annual total returns were 3.05% and 3.32% respectively. Subtract inflation and taxes and both funds produced declines in buying power for those silly enough to leave their money in them over the entire half-decade. Smart investors know that equities and equity mutual funds almost always provide superior long-term results compared with bonds or bond funds. Someone who plunked their money into the S&P 500 exchange-traded fund saw great inflation and tax-adjusted annual gains of 12.73%. They made 283.4% more than what the better of the two DoubleLine bond funds produced. What benefit did Mr. Gundlach's expertise provide for his fund holders? Based on the actual results, absolutely nothing. Value Line's total return accounting for various equity and fixed income performance shows it wasn't just DoubleLine that couldn't keep up with the equity markets. Stock funds doubled, tripled and quadrupled many of the bond categories during the 12-months ended Dec. 31, 2019. Five-year trailing results were similar. The exact categories of funds were much less important (read: minutia) than the big picture decision to invest in equities rather than bonds. The same data from the periods ending March 31, 2019, told the same story. The longer your time frame the surer you can be that stocks will do better than fixed income. Jeremy Siegel's book Stocks for the Long Run (5th edition), showed equities outperformed bonds 95.8% of the time over rolling 20-year periods and won 99.3% over rolling 30-year horizons. Owning risk-free T-bills offered even worse odds of success. If you are putting money to work in IRAs, 401(k)s, or simply in taxable accounts for long-term growth, it makes no sense to keep even a sliver of that permanent capital in cash or bonds. Ask yourselves the question: Would I feel better at retirement with $1 million to $2 million that fluctuates, or $300,000 to $500,000 that is solid as a rock? I'm betting you'd select door No. 1. U.S. bond yields are near the lowest levels of our lifetimes. There has never been a less favorable time to own fixed income. Ignore the trivial differences in bond fund managers and focus on the critical issue of asset allocation. The higher your commitment to stocks, the more comfortable your future lifestyle is likely to be. I've been heavily invested in stocks since 1978. I own no CDs, no bonds and no bond funds. My IRA account, started in 1982 with $2,000, is now squarely in seven-figure territory simply by following my own advice. Want similar results? Choose wisely.

Stay Far Away From These Investments

Focus on the big picture and you'll see there has never been a less favorable time to own fixed income.

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