Low interest rates may not be going away anytime soon. Luckily, for income investors, there are still options to earn safe and higher-than-average income.
Way back when – I jokingly call it the period in my life when dead wasn’t forever – I used to fly helos and fixed-wing aircraft for the Navy.
Now, naval aviation is not in and of itself a dangerous profession. But it is horribly unforgiving if you screw up. I know the media makes it look like every flight is death defying, but it isn’t, not if you stick to the tried and true procedures.
The predictions of a bond market bubble and/or the collapse of the bond market have been nonstop since interest rates started to drop after the stock market collapse in 2008.
Below are two bond recommendations I made on March 24, 2009, right after the last huge sell-off in the markets.
I know if you follow bonds, these numbers seem like complete bunk for A- and AA- rated companies, but, I swear, these were actual recommendations.
Doing something as simple as focusing on the fundamentals of a corporate bond rather than its interest rate will return three and four times what the average income investor is earning.
But virtually no one does it.
That’s too bad, because the same average income investor has starved for yield for more than six years.
From its glory days in the early 2000s, Advanced Micro Devices has dropped from more than $40 to about $4.40 a share.
So how does a company dealing with such horrible market conditions pay its bondholders 66% more than it has to?
You’ll need 20 times your annual income to retire… We can either tighten our belts, which none of us are very good at, or generate more income from the money we have put aside. I chose more income. And here’s how you can do it with the maximum amount of safety.
In this market, I won’t consider any stock unless it is a screaming bargain. I’m a bond guy. I’ve proven that it’s possible to beat the markets and not lose the safety of bonds.
So, I should really say, if there isn’t blood flowing under the doors in the executive suite of a company because a stock has been beaten up so badly, as far as I am concerned it’s overpriced.
But there is always an industry, sometimes an entire sector, that is in “blood under the door” mode. I’ll show you what I mean in just a moment.
It’s time to set the record straight about bonds, specifically high-yield bonds.
Since the bad ol’ days in the 1980s, when Michael Milken and his cronies at DLJ ruined the reputation of high-yield bonds – that’s where the term “junk bonds” came from – they have been the whipping boy of the industry.
Ask any stock broker and he will tell you these bonds are high risk and to avoid them.
In case you didn’t notice, when stocks took their seasonal beating in January and early February, bonds held up beautifully. In fact, Treasurys rallied, corporate bonds didn’t budge and municipal bonds emerged as the new favorite son of the market.
This is exactly what bonds are supposed to do. Their price stability, predictable returns and resilience to stock market drops make them the perfect holding for retired – and about to retire – investors who can’t afford losses or volatility.