Fixed Income Rarely Remains Fixed for Long

old_tennis_shoesWhen I was growing up, I had two pairs of shoes: a dress pair and a pair of tennis shoes. I don’t know why they were called tennis shoes. They should have been called tennis-running-soccer-baseball-skateboarding-biking-racequetball-basketball-hiking-all around activity shoes.

One shoe to unite them all…

Oh how times have changed.

I still own a pair of tennis shoes, but I also own flip-flops, bike cleats, running shoes, deck shoes, hiking boots and of course dress shoes.

Where I used to only look to one “shoe”lution now I know I have several.

The same is true with my investments.

I used to consider bond funds, such as the Vanguard Total Bond Index (chart below), as the primary source of income from my accounts.

Quarter End Value

Just as my shoe collection has expanded over time, my income investments have expanded as well.

This chart shows the per share quarterly distribution (dividends, interest, etc.) from the Vanguard S&P 500 Stock Index VPINX and the Vanguard Total Bond Index VBMFX.

The income from this “fixed income” fund has actually declined by 50% over the past ten years while the income from the 500 stock index, while much bumpier, has actually more than doubled over the same time frame.

Dividend Distributions

That’s not to say stocks don’t have their downsides.

This chart is the quarter end value for the Vanguard S&P 500 Index.

Quater End Value

I love my flip-flops but they’re horrible to run in.

Different shoes for different purposes.

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I am a small business owner who believes most Wall Street produced financial writings fall into one of two buckets: propaganda or painfully dull. I am offering an alternative of short posts I hope people can relate to and after reading will have a better understanding of finance. I have been married to my beautiful wife for 15 years and we have two children, one of whom has autism. When I am not working or spending time with my family I enjoy running half marathons, bike riding and competing in triathlons.  See more at YourWealthEffect.com.

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