Retirees: These Investments Offer Plenty of Yield and Safety

Protecting moneyA recent email from a Wealthy Retirement reader stated that bonds don’t pay enough to make them worth owning.

Most of you know I am the bond guy at The Oxford Club, and I’m sure you can imagine how generalizations like this drive me nuts!

To begin with, anytime you hear someone say bonds, they are talking about Treasurys. Not munis, corporates or anything else, just Treasurys. Because that’s the only thing the money press covers – Treasurys.

[ad#Google Adsense 336×280-IA]And there is no single bond market. Whenever you hear people talk about the bond market, believe me, they are talking about the Treasury market.

There are actually many bond markets! There is the Treasury market, the corporate market, the mortgage market, the municipal market and a couple more specialized ones.

And two of the three better-known ones, the Treasury and corporate markets, are so different they usually move independently of each other.

In other words, Treasurys rarely move in the same direction or amount as corporates.

In just the last few weeks, the 10-year Treasury yield broke the 2% level. Intraday trading had its yield below 2%. The reader who wrote in was right about one thing; Treasurys are not worth owning. That’s only $20 a year in income from a 10-year, $1,000 investment.

That’s just stupid.

But, at the same time, the yields on most corporate bond were increasing to some of the best we have seen in a couple years: 5% to 10% a year is not unusual.

That’s 2.5 to five times more income than the so-called bond market… Treasurys.

If you’re willing to take a little more risk, 20% a year is out there, too.

But the most maddening part is that stockbrokers will tell you to avoid these big payers because they are too risky. They recommend stocks, and corporate bonds are too risky? Come on, man!

The success ratio even for high-yield bonds, those are the highest paying, is around 98% in this market. That’s a tiny 2% default rate. And these are too risky, but not stocks? Unbelievable!

But the worst part of this whole scenario is, even if you look for it, you can’t find any good information about bonds. Stock information is everywhere but none for bonds. And that’s why most people don’t own them.

There’s a lot of safe income available to retirees in high-yield bonds, but most never consider them because they know nothing about them.

During the toughest periods of the last six years, corporates have returned 5% to 10% annually from rock-solid companies with virtually no risk to your principal.

Yields like these from companies with double-digit five-year growth estimates, double-digit annual earnings growth, increasing revenues and BB and BBB ratings.

You should ask yourself why you aren’t getting this kind of income with BB and BBB safety. Take a look at corporate bonds. There is plenty of yield and safety if you know where to look.

— Steve McDonald


Source: Wealthy Retirement