Today's Chart of the Day comes from an article in AAII.com (American Association of Individual Investors) and shows the average cumulative global corporate default rate from 1981-2021 in seven year spans.
A common misconception is that the yield you see from a bond portfolio is what you can expect to earn. However, this is a best case scenario as some of the bonds will ultimately default, causing a loss that reduces the yield.
In rough figures, if you take the weighted average default rate of all speculative/junk bonds and assume a 50% loss of principal of those bonds, over seven years this can reduce your total return by 2.9% annually.
The current yield to maturity on speculative/junk bonds is 7.6%. When you add in the historical loss of 2.9%, this reduces the total return to 4.7%, which happens to be the same yield of 4.7% in an investment grade bond with a similar maturity.
Small Business Administration (SBA) 504 loans offer affordable financing to small businesses for financing large equipment or real estate purchases. Because of their low interest rates and long loan terms, this type of small business loan is an ideal option for owners who need to make large purchases.
Today's chart appears in a research paper titled, “Moving the Goalposts? Mutual Fund Benchmark Changes and Performance Manipulation” which was referenced in an article from the Wall Street Journal the week of August 22. The paper denotes that 37% of all actively managed mutual fund managers changed their benchmarks between 2006 and 2018, and two-thirds of these changes made the funds appear to improve their performance.
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