Happier Days Ahead

STOCK INVESTORS are hanging tough. Bond investors? Not so much.

Citing flow of funds data from EPFR, Bank of America Global Research says investors collectively purchased $195 billion of stocks this year through June 22. The implication: People aren���t panicking. That���s great news, and it supports the narrative that today���s stock investors are less bullied by market volatility.

It���s a different story in the bond market, where we���ve seen so-called capitulation. Bank of America notes that $193 billion of bonds have been sold this year by investors. I���m concerned that many folks have given up on bonds, no longer viewing them as the safe alternative to stocks. Seeing globs of red on bond-fund performance sheets is no doubt discouraging.

But I think this pessimism is overdone. Why? The stock market may be unpredictable, often wandering far from what pundits perceive as ���fair value.��� By contrast, with bonds, we have a good sense of what future returns will be. If we look at a bond���s current yield to maturity, we more or less know what we���ll earn through price changes and future interest payments. Right now, for example, high-quality corporate bonds yield 4.69%. That���s the highest yield we���ve seen in the past decade.

Your emergency fund is also finally earning a little something. As of Friday, Vanguard Federal Money Market Fund (symbol: VMFXX) was offering a yield of 1.38%. That���ll almost certainly climb through the balance of 2022 as the Federal Reserve continues to hike short-term interest rates. Looking at current market expectations, I anticipate the top money market mutual funds will yield more than 3% by late 2022.

The bottom line: Don���t be swayed by this year���s lousy bond returns. The recent past is a rotten guide to future performance.

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