Investors keep pouring money into bonds — and paying a big price for it

Risk-averse investors keep pouring money into bonds even though it means they’ve missed out on a big stock rally and face substantial danger ahead.

The market just saw its best August in four years, but again witnessed a large disparity in where money found a home, with the bulk again going to fixed income. That trend continued even though many on Wall Street worry that inflation and rising interest rates will cut into returns.

Indeed, domestic stocks have easily outperformed bond funds this year, but that hasn’t been reflected in cash deployment.

Investors poured just over $19 billion into bond funds for August, compared with a net withdrawal of $1.4 billion for U.S. stock-focused funds, according to data this week from Morningstar.

Over the past year, flows in mutual funds and exchange-traded funds combined have told a disparate story — $293.2 billion has gone into bonds, while just $4.5 billion has found its way into U.S. equities. The S&P 500 has gained 17.4 percent during the 12-month period, and government bond funds tracked by Morningstar have collectively returned less than 1 percent.

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