I’m talking about investments, of course. What did you think I was referring to?

I bought my first stock in 1990. It was Harley-Davidson (NYSE: HOG). I bought 50 shares at $12. Three months later, I sold it at $18. Stock trading commissions were $49 per trade, so I made a cool $202.

A few years later, my wife worked at a household-name consumer goods company. The company was doing okay, but it had some upcoming initiatives I thought would work well.

The company was privately owned, so there were no shares to buy, but then I discovered that it had bonds. I knew very little about bonds at the time, but I wanted in on this company.

As I dug into the financials and learned more about bonds, I remember thinking, “You’re telling me that I can buy this bond for $820 and in three years, I’ll receive $1,000 – all while being paid 7.25% per year? I am definitely in.”

You see, bonds are very different from stocks. When you own a stock, you have an ownership stake in the company, and your fortunes are tied to those of the company.

When you own a bond, you do not own a piece of the company. You are a creditor of the company. A bond is a loan – and loans must be paid back.

Pretty much the only time those loans are not paid back is if a company goes bankrupt.

I bought the bonds. And right on time, at maturity, I received $1,000.

Now, here’s the thing about bonds. Those initiatives the company had that I was excited about didn’t work out as well as I thought they would. If I had owned the stock, it probably would not have gone anywhere. The price might have even gone down.

But with a bond, it doesn’t matter if earnings are down, if the company disappoints Wall Street, or if it is embroiled in a scandal. If the company is going to remain solvent, it pays back its loans. The bond is backed by a contract that is enforced by law.

This company was still profitable, just not as highly profitable as many expected it to be. So paying off the loans was absolutely no problem, and I made a nice return – all while receiving a decent yield.

Don’t get me wrong. I’m still a stock guy. I love collecting dividends, seeing the dividends increase every year, and watching the stock prices go higher. But as I get older, income and capital protection become more important each year.

And bonds are how I achieve that. I collect solid streams of income, knowing I’ll receive $1,000 back per bond at maturity no matter what I paid.

If I paid $1,000, I get my money back while being paid a decent interest rate. If I paid less than $1,000, I have a profit at maturity, also with interest.

If I can find a solid company whose bonds pay a good yield and are trading at a discount – say, in the $900s or even $800s – I jump on them, confident I’ll be paid $1,000 at maturity.

One thing many people don’t realize about bonds is you can make big profits on certain speculative bonds.

For example, let’s say a bond pays a 4% coupon, but the company has run into trouble and the bond is trading at only $500 instead of $1,000. This is known as a distressed bond. The market is telling you that it does not have confidence in the company’s ability to meet its obligations.

But if you believe the company will be able to fulfill its legal requirement to pay back bondholders, you could buy the bond for $500, collect an 8% yield (if the bond is half-price, the yield is twice the stated coupon) and double your money when the bond matures at $1,000.

Keep in mind, that last example is for investors who can handle high risk. Most bond investors are perfectly content buying a safer bond in the $900s, collecting a solid yield, and pocketing a profit at maturity.

Owning bonds is a great way to ensure you collect income, stabilize your portfolio during volatile markets, and make some profits along the way.

I was a bit lucky that the first time I picked a stock, it ended up working out. With bonds, you don’t have to be so lucky. They’re built to work out – that’s the whole point.

The post The Ultimate Way to Stabilize Your Portfolio appeared first on Wealthy Retirement.

Chief Income Strategist Marc Lichtenfeld puts a ton of hard work into every issue of The Oxford Income Letter… but he’s especially excited about this month’s edition.

The March issue was just published on Tuesday, and in the video above, Marc gives you a sneak peek of why he’s so proud of this issue.

Obviously, I can’t give too much away here… but here are just some of the topics that are covered in the issue:

• Marc’s top recommendation for this month, a 6.5% yielder that you might be overlooking… even though it’s a household name
• How the market has performed over the past century under Democratic control, Republican control and divided governments (I think you’ll be pleasantly surprised by what Marc discovered!)
• Why Marc is doubling down on his unpopular prediction that rates will be relatively stable throughout 2024… AND why he says The Oxford Income Letter‘s portfolios are “built to withstand interim volatility” no matter what happens to interest rates
• An incoming trillion-dollar debt threat that Director of Trading Anthony Summers says is sure to affect a certain class of investors (hint: it’s not the U.S. national debt).

If you’re already an Oxford Income Letter subscriber, I hope you enjoy this issue as much as I did.

And if you aren’t, it’s easy to join! Just watch Marc’s video above until the end and click on “Click here to get access to the March issue!” to claim a special discount.

The post How the Presidential Election Could Affect Your Portfolio appeared first on Wealthy Retirement.

I earned those high rates of interest for several years, and I came to expect them.

So when rates started to fall in the 2000s and banks and brokers began to pay as close to zero interest as they could, it was incredibly frustrating for me – as it was for all savers.

Today, the yield on the 10-year Treasury (a good proxy for interest rates) is a little more than half of where it was when I first ventured out into adulthood. So you’d think my Schwab account would pay somewhere around 2%, right?

Wrong!

Just as I’m still anchored to the 4% interest I received when I was young and impressionable, the banks and brokers are still intent on paying the nearly 0% interest they’ve been paying for the past 15 years or so.

My Schwab account pays me the princely sum of 0.45%. My bank pays even less. Suffice it to say, I keep very little cash in those accounts.

But that doesn’t mean there aren’t good income opportunities out there. You can earn 5% or more in some short-term Treasurys and certificates of deposit (CDs). Now, you do have to lock up your money for the full term, but it can be for very short amounts of time.

For example, you can earn 5.5% annualized on a one-month Treasury bill. And T-bills are liquid enough that you can sell them if you need to get your money out.

Of course, there’s no guarantee you’ll get all of your money back, as the bond’s price could fluctuate. But if you wait four weeks to get access to your funds, you are guaranteed to get all of your money back plus interest.

For those who are comfortable making longer-term investments in order to obtain higher yields and potential capital gains, corporate bonds are a great choice.

Right now, you can lock in a 5.4% yield on “A” rated corporate bonds for two years. These are extremely safe bonds.

If you go down to “BBB-” rated bonds, which are still investment-grade and very safe, you can earn as much as 7.4%. And if you’re willing to take on a bit more risk, you can earn more than 11% on some “BB-” rated bonds. (That’s at the high end of the range, but it is available.)

Plus, if economists and Wall Street are correct and the Fed lowers rates several times this year, bond prices will soar, because they move in the opposite direction of interest rates.

Bonds are in a sweet spot right now. If rates don’t move, bond investors will continue to receive their highest levels of interest in the past 15 years or so. And if rates fall, those higher yields will become even more valuable and bond prices will jump, offering the opportunity for even greater returns.

Life has gotten pretty expensive in the past few years. Savers and investors need every dollar working hard for them. We’re in a perfect environment for bonds to generate strong yields and potential profits.

If you don’t own any bonds, consider adding some to your portfolio today – whether they’re short-term Treasurys or higher-yielding corporates.

The post A Goldilocks Environment for Bonds appeared first on Wealthy Retirement.

I’m not sure which planet she’s on, but I know it’s not the one that’s between Venus and Mars.

I get it. It’s an election year, housing is extremely expensive these days and Warren historically fights for disenfranchised consumers who can’t afford housing.

But let’s put rates in context.

This is a chart of the federal funds rate over the past 70 years. Do our current rates really look astronomical?

The historical average is 5.42%, and the current range is 5.25% to 5.50%. So we’re right in line with where we’ve been historically.

Furthermore, there were 9 million job openings in December, up from 8.9 million in November. Prior to the pandemic, there had never been 8 million jobs available in a month.

In January, employers added 353,000 jobs. That’s a big number, and it’s an increase from December’s 333,000. Wages are also up 4.5% over last year.

And corporate earnings are expected to have grown 4.4% in the fourth quarter of 2023, while fourth quarter GDP was a robust 3.3%.

So we’re not exactly teetering on the brink of a recession.

But rates could certainly change. As you can see in the chart above, big spikes have often been followed by quick moves lower, as the Fed has a habit of overdoing it both when it raises rates and when it lowers them. (This has actually created an exciting opportunity for us, though… stay tuned for more on that next week.)

To make matters worse, China is staring at a looming financial crisis. Chinese property developer Country Garden Holdings (OTC: CTRYF), one of the largest companies in the world, is selling off foreign assets as it tries to deal with roughly $36 billion in debt.

And another Chinese developer is in even worse shape. Evergrande, which has $300 billion in debt, was ordered by a court to liquidate its assets in order to pay creditors.

Should China’s woes make their way over to the U.S., the economy could hit the brakes and rates could in fact be lowered.

Either way, bonds are the place to be right now.

If the economy remains strong and rates stay stable, bondholders will continue to enjoy stronger yields than they’ve seen in years.

Investment-grade corporate bonds are yielding 6%. Non-investment-grade bonds rated BB or better are yielding more than 7%. (Remember, bondholders are guaranteed to get their money back at maturity unless the company goes bankrupt.)

And if rates fall as Warren wants, bond prices will rise and produce nice gains for bondholders, because bond prices move in the opposite direction of rates. In that scenario, investors could either take their profits or continue to collect a high rate of interest (which will look progressively better as rates move lower) until maturity.

I’ve been telling my subscribers to load up on bonds for a while now. It’s hard to imagine a better scenario for this investment class.

The post Bonds Are the Place to Be Right Now appeared first on Wealthy Retirement.

Now that 0% interest rates are a thing of the past, bonds finally pay a decent amount of interest. And with the markets predicting rate cuts in 2024, you have a very good chance of earning a strong return on bonds, as their prices will rise if rates fall.

But I have a big problem with the bond industry.

It’s the way most investors buy bonds: bond funds. Since bond prices move in the opposite direction of interest rates, bond funds work well when rates are falling and the prices of the bonds in their portfolios are rising. But when rates rise, those same bonds fall in price and investors get crushed.

For example, the largest bond fund, the Vanguard Total Bond Market ETF (Nasdaq: BND), dropped from a high of $75 to $68 last year before bouncing in October as the markets began to believe rates had topped out. That’s a drop of more than 9%.

The iShares Core U.S. Aggregate Bond ETF (NYSE: AGG), another large bond fund, fell 9.5% from high to low last year.

Both of these exchange-traded funds (ETFs) are still below where they were a year ago.

The two funds have more than $200 billion in combined assets. That’s a lot of money that retail investors shelled out because they thought bonds were safe.

The thing is, bonds are safe… if you buy individual bonds rather than a fund or ETF.

When you buy a bond fund or ETF, you are at the mercy of the fund manager or the index that the bond is tied to. And if you want to withdraw some funds, you’d better pray that the price is higher than it was when you bought it. Otherwise, you’ll end up taking a loss.

But when you own individual bonds, you’re able to plan accordingly so you know when your cash will become available. If you needed your funds in October 2026, for example, you would buy an individual bond that matures before then.

Best of all, you know that at maturity, each bond is going to be worth par value (which is $1,000) no matter where it traded in the past. At maturity, you will receive $1,000 unless the company has gone bankrupt – which is extremely unlikely unless you’re buying the riskiest of bonds.

If you were to buy the iShares bond ETF I mentioned above, the price could be anywhere by October 2026. It could be at $98, which is where it’s at as I write, or it could be at $105 or $80. If you buy it at $98 and it’s at $80 when you need the money, you’ll collect only $800 for every $980 you invested.

Meanwhile, if you buy a bond that matures in October 2026 for $980 today, you will receive $1,000 in October 2026 – plus you’ll have collected interest along the way.

Wall Street makes it very easy to buy bond funds or ETFs. Buying them is just like buying stocks. It’s about as simple a process as there is.

Buying a bond is a little – but just a little – more complicated. Sometimes, there is no market for a particular bond, meaning your broker will have to work to find a buyer or seller for you. If they can’t, you won’t be able to make the transaction. For that reason, you should only buy bonds you intend to hold until maturity.

If the bond’s price climbs or you want to sell for another reason, you likely will be able to, but unlike with stocks, ETFs and mutual funds, there’s no guarantee there will be a buyer.

You can always call the fixed income desk at your broker if you ever get stuck or have questions. Most fixed income desks have very good customer service, as the representatives are usually bond specialists.

Individual bonds provide income and safety for your portfolio. Bond funds produce income only. There is no assurance that you will ever get your money back from a bond fund.

Stick with individual bonds for the fixed income part of your portfolio.

The post The Big Problem With the Bond Market appeared first on Wealthy Retirement.

As a result, one of the most common questions I’m asked is whether investors should lock in these rates for the long term.

I don’t think that’s the right move.

Short-term rates are higher than long-term rates across many kinds of fixed income investments right now, which is the opposite of how things usually are.

You can get 5.39% on a 4-week Treasury and 5.4% on an 8-week Treasury, which is the highest-yielding Treasury. But if you go out to one year, you’ll earn 4.67%. Beyond that, the 5-year Treasury yields 3.89% and the 10-year yields 4.01%. (Keep in mind that all of these rates are annualized.)

The best six-month CD rate is 5.5%. If you lock your money up for a year, you’ll still earn 5.5%. But if you do so for three years, you’ll earn 4.75%, and for a five-year CD, that drops to 4.6%.

In corporate bonds, you can earn about 6% on a BBB rated bond for one year and 7% on a bond with a three- or five-year maturity, but that goes down to 6.48% for a 10-year maturity.

Personally, I would never lock up my money for several years to earn less than 5%.

Now, with respect to interest rates, nearly everyone believes they are going to be much lower by the end of this year.

I don’t.

But even if I’m wrong and rates do fall, they won’t stay low forever. Look at how drastically rates have climbed recently. Only three years ago, the 10-year Treasury yielded just over 1%.

Many investors have anchoring bias. They rely too heavily on previous information even if that information is not accurate or no longer relevant.

For example, retailers take advantage of anchoring bias all the time by offering similar products at different prices, which pushes you to buy the cheaper product – even if it’s not a great deal.

You may be at a ballgame where a large beer costs $18 but a regular beer is $14. That $14 Michelob doesn’t sound so bad now, does it?

Or when you’re looking at a $60 stock and it drops to $55, you may think it’s a steal… even though some fundamental research would suggest that it is still too expensive.

The low rate world that we lived in for several years has made today’s rates seem juicy. But historically, they are not high at all.

Going back to 1962, the average yield on the 10-year Treasury is 5.87% – quite a bit higher than where it is today.

The same is true for inflation. We got used to near-zero inflation for years, so today’s 3.35% still seems high. But the long-term average inflation rate is 3.28% – right about where we are today.

I believe fixed income should be an important part of everyone’s portfolio because it can provide ballast when stocks tumble and it can generate safe income. But unless interest rates really take off and get to very high levels, I do not recommend locking your money up in bonds with maturities longer than a few years – and certainly not in any long-term bond mutual funds that are guaranteed to lose money if rates rise.

I have a lot of my cash in Treasurys and CDs that mature in one year or less. Those vehicles are great places to keep your short-term cash.

Sure, if rates drop, you could miss out on some extra interest for a few years by not investing in longer-term bonds.

But even if rates do fall, I expect it to be part of a normal cycle in which rates and fixed income yields are constantly fluctuating. I don’t suspect we’re going back to a zero interest rate or even low rate environment anytime soon.

The post Don’t Make This Fixed Income Mistake appeared first on Wealthy Retirement.

Happy holidays from all of us at Wealthy Retirement!

We hope 2023 has been full of laughter, love and light.

To help kick off 2024 in a similar manner, we’re doing something a little different this week.

We take our mission of helping you build your wealth very seriously. But that doesn’t mean we don’t like to have a little fun from time to time.

In today’s State of the Market, you’ll see the “best” side of Chief Income Strategist Marc Lichtenfeld.

Happy holidays to you and yours,

Rachel

P.S. We won’t have a typical weekly recap on Monday since it’s New Year’s Day. But don’t worry – we’ll be back to our normal schedule starting on Tuesday, January 2. Stay tuned!

The post The “Best” of Marc Lichtenfeld appeared first on Wealthy Retirement.

If rates decline next year (as many are expecting), that should lead to profits as well, as bond prices move in the opposite direction of interest rates. So if rates fall, bond prices will rise.

Furthermore, bonds are less risky than stocks, because bondholders are guaranteed to get their money back at maturity unless the underlying company goes bankrupt. Stockholders have no such guarantee. But in exchange for the higher risk of owning stocks, equities owners typically make more money over the long term.

Today, however, there is a unique opportunity to generate long-term stocklike returns with almost no risk. And to make it even sweeter, the IRS can’t put its grubby hands on the money.

Some municipal bonds (also known as munis) are currently paying more than 5%.

Now, you may be thinking, “Wait a second… 5% is nice, but it’s hardly a stocklike return.”

And you’d be right… partially.

Since 1971, the S&P 500 has generated an annual return of 7.6%. But don’t forget that dividends and capital gains are taxed, so an investor wouldn’t have taken home the full 7.6%.

Most muni bonds, however, are tax-free. You don’t pay any federal tax on the income, and if you live in the state that issued the bond, you don’t pay any state tax either.

So when you look at a muni bond, you have to figure out the taxable-equivalent yield to see whether it makes more sense to buy a taxable bond with a higher return or a tax-free muni bond with a lower return.

Today, you can buy a Missouri Highways and Transportation Commission (CUSIP 60636wnu5) May 2033 bond that has a yield to maturity – a common way to express a bond’s annual return – of 5.42%. In other words, you can expect to earn about 5.4% per year for 10 years tax-free.

To calculate the taxable-equivalent yield, you simply divide the bond yield by 1 minus your tax rate.

You can also find free taxable-equivalent yield calculators online, such as this one. But let’s go through the math on this bond so you can see what I’m talking about.

Let’s say you’re in the 32% tax bracket. We take the 5.42% yield to maturity and divide it by 1 minus 0.32, or 0.68. So 5.42% divided by 0.68 equals 7.97%. You’d need to earn more than 7.97% per year in a taxable investment to beat this particular muni bond.

Remember, stocks return an average of 7.6% before taxes. This muni bond returns 7.97% on a taxable-equivalent basis for bondholders in the 32% tax bracket. That return is guaranteed, and the bond has a very high rating of AA+, which means there is almost no chance of default.

The risk with bonds is opportunity risk. By owning this bond, you are guaranteed a 7.97% annual taxable-equivalent return for 10 years, so if stocks have a big decade, you could miss out on some gains. Of course, if we hit a nasty period, stocks may return less than your bond or even lose value.

There are a few other things to keep in mind. First, your money would not be locked up for 10 years. You could sell the bond anytime you wanted. You just wouldn’t be guaranteed the same return if you were to sell early. It could be higher or lower depending on the price at which you sold the bond.

Also, the taxable-equivalent yield will depend on your tax bracket. If you’re in a lower tax bracket, then the taxable-equivalent yield will be lower, so there may be some better deals out there in taxable bonds and stocks. If you’re in a high tax bracket, then muni bonds become more valuable.

Finally, you can generate even greater returns by buying bonds that have lower ratings, but when it comes to munis, I wouldn’t buy anything rated lower than A. After all, one of the attractive features of munis is the certainty that you’ll be paid back in full at maturity.

It’s definitely worth your time to make sure you understand muni bonds. I recommend you look for some good opportunities to generate tax-free income and returns with almost no risk.

The post Buy Muni Bonds to Protect Your Cash From Uncle Sam appeared first on Wealthy Retirement.

While I continue to hold dividend stocks for the long term, lately I’ve been putting most of my cash to work in fixed income.

Treasurys are yielding more than they have since 2007. Investment-grade corporate bonds – those with very safe S&P Global ratings of BBB- or higher – have an average yield of 6.3%, their highest yield in nearly 15 years.

Meanwhile, non-investment-grade bonds, or junk bonds, are yielding an average of 9%. While these are more speculative than investment-grade bonds, they are still more conservative than stocks – even blue chip stocks.

Here’s why…

There’s a very key difference between stocks and bonds.

A stock is worth only what someone is willing to pay for it at a given time.

A bond is worth $1,000 at maturity regardless of what anyone is willing to pay for it at any time.

Here’s what I mean.

When you buy a stock, the only way to make money on it is to sell it for more than you paid. When you want to sell the stock, you have to hope the price is higher than it was when you bought it.

With a bond, you know what the exact price of the bond will be on a certain future date. On the bond’s maturity date, you will receive $1,000 unless the company has gone bankrupt. Barring that unlikely scenario, you will get $1,000, regardless of whether you paid $1,000, $900 or $500 for the bond. You’ll also collect interest along the way.

It’s important to realize that even if the price of the bond falls while you own it, that won’t affect your eventual payout. At maturity, you will be paid $1,000.

So let’s say you buy a bond with a 5% coupon that matures on November 1, 2026. Right after you buy the bond, the company posts bad news and the bond drops to $950. A year later, there’s more bad news, and the bond market starts getting scared. Your bond drops all the way to $700, which is a big move in the bond market.

As we approach November 1, 2026, the bond’s price starts moving closer to the $1,000 mark. On that date, the bond matures and you are paid $1,000. It doesn’t matter that the market lost confidence in the bond two years earlier and the bond was trading at a huge discount. The bond will pay $1,000 at maturity no matter what.

The stock market has been a mess for two years. The S&P 500 is up this year, but that’s mostly due to seven Big Tech stocks. Most stocks in the market are down… and many are down big.

And this bear market shows no signs of slowing down in the near future.

When you can earn more than 5% risk-free in the short term in Treasurys, more than 6% in safe corporate bonds or even 9% in more speculative bonds and get your money back, you have to ask yourself whether it’s worth it to risk your cash in stocks, which historically average a return of 8% to 10% per year but involve much more volatility.

My long-term money is still invested in stocks because I (hopefully) have plenty of time for those stocks to grow. But my funds that I’ll need in the shorter term are in bonds right now.

I have a bunch of bonds maturing between now and the end of the year, and I’m excited about the safe income-producing opportunities we have now that weren’t available just a year ago.

You rarely hear someone pounding the table on bonds.

I am.

The post Today Is the Perfect Day to Buy Bonds appeared first on Wealthy Retirement.

You can always find a reason not to invest. But there’s a way you can invest your cash, earn interest and not worry about losing money.

Bonds.

Notice I didn’t include the word “funds” after. Like Elvis and the hound dog, bond funds are no friend of mine. I’m not a fan.

If you invest in a bond fund and rates go higher, you are nearly guaranteed to lose money because bond prices fall as interest rates rise. As a result, the value of the bond fund will fall as well.

If you own individual bonds, the same is true (bond prices will fall if interest rates go higher), but that is irrelevant if you plan on holding the bonds until maturity.

Bonds mature at $1,000 no matter where they trade beforehand. You could own a bond that’s a real dog and trades all the way down to $800. And at maturity, it will be redeemed for $1,000.

The only way that won’t happen is if the company goes bankrupt. So barring that rare occurrence, bondholders will get their money back – or earn a profit if they were able to buy the bond at a discount – and collect income along the way.

Here’s why I’m so excited about bonds now. After years of record-low interest rates, bonds are finally sporting decent yields. You can get bonds of high-quality companies with 6% or 7% yields. I’m talking about companies like JPMorgan Chase and Ally Financial.

And the timing couldn’t be better.

Currently, the economy is strong. Despite everyone’s fears of recession, unemployment is near record lows, wages and productivity are rising, and more dollars are being invested in the U.S. by overseas companies than ever before.

Inflation is still too high, and I suspect it is not under control yet. So we could still get some more interest rate hikes, but we are likely going to see the end of the rising rate environment. And should the economy sputter and we fall into recession, rates will come down, which will make the bonds that you hold more valuable.

If you own a bond yielding 6% and interest rates drop next year, an equivalent bond may then yield 5%. So your 6% bond will jump in price because it’s more desirable. Eventually, it will rise in price enough to yield 5% – for someone else. Yet you’ll still earn 6% until maturity. Or you could sell the bond for a profit at the elevated price.

Remember, bonds are called fixed income assets. The interest won’t vary; it will stay fixed. If rates drop, you’ll continue to earn the same yield as the day you bought the bond. So today’s bond yields may be even more attractive in a year or two if interest rates decline.

I haven’t seen a better opportunity in the bond market in my 16 years with The Oxford Club. Yields are strong, and if a recession occurs, as many still expect, bonds that are bought today will be big winners, generating lots of income.

Bonds are the perfect Goldilocks investment for today’s market.

I’m loading up on fixed income in my personal account. I recommend you do the same.

The post Is This the Perfect Time to Buy Bonds? appeared first on Wealthy Retirement.