~ Dimensional Does It Pay to Extend Credit? 10% 8% Compound Returns 6% 4% Standard Deviation 2% 0% Quality Government AAA AA A BBB High Yield Compound Returns ('Yo) Standard Deviation (%) 7.14 7.53 7.75 7.96 8.59 9.18 4.12 4.27 4.67 5.03 4.94 9.44 Gcvern nert laR'1f; i3 Baidays us Government Bond index Intermediate AAA rating is Barclays US Intermediate Credit Aaa Index AA rating is Bardays US tntermeoiate Credit Aa index. A rating is Barclays US Intermediate Credit A in:e\( EBB rating s Bardays US Intermediate Credit Baa Index. High Yield raling is Barclays High Yield Composite Bond Index Intermediate. Barclavs data, formerly Lehman Brothers. provided by Bardays Bank PLC. 40
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~ Dimensional
Does It Pay to Extend Credit?
10%
8% Compound Returns
6%
4%Standard Deviation
2%
0%
Quality Government AAA AA A BBB High Yield
CompoundReturns ('Yo)
StandardDeviation (%)
7.14 7.53 7.75 7.96 8.59 9.18
4.12 4.27 4.67 5.03 4.94 9.44
Gcvern nert laR'1f; i3 Baidays us Government Bond index Intermediate AAA rating is Barclays US Intermediate Credit Aaa Index AA rating is Bardays US tntermeoiate Credit Aa index. A rating is Barclays US Intermediate Credit Ain:e\( EBB rating s Bardays US Intermediate Credit Baa Index. High Yield raling is Barclays High Yield Composite Bond Index Intermediate. Barclavs data, formerly Lehman Brothers. provided by Bardays Bank PLC. 40
~ Dimensional
Does It Pay to Extend Maturities?Extending too far may result in diminishing returns/risk tradeoff
4 AnnualizedStandard Deviation
• Not all investors define riskas standard deviation. Someinvestors may seek to hedgelong-term liabilities using long-term bonds.
QUARTERLY: 1964-2012
14
8AnnualizedCompound Returns
• Historically, longer-maturityinstruments have higherstandard deviations and havenot provided consistentlygreater returns.
12
10
6
2
a
One-Month Six-Month One-Year Five-Year Twenty-YearUS Treasury US Treasury US Treasury US Treasury US Govt.