Change How You Are Investing or Face Retirement At The Poverty Level

Steve McDonald — Mon, 13 Jul 2009 15:21:28 +0000

The carnage of the past two years in the stock market is giving investors a clear warning; learn a new way of doing things or get ready for more of the same. The money clock never stops ticking and the longer you wait to make the necessary changes to stop the bleeding in your accounts the less you’ll have when you retire. Every day you put this off increases the chance of being broke in retirement.

This is the most important money decision you will ever make.

The losses the Baby Boomers have racked up in the stock market all but guarantee they will have to work well past their retirement age or survive on Social Security which puts them below the poverty level, for life.

It doesn’t have to be this way!

Are you ready to get serious and finally start making money?

There is a new strategy that works in all types of markets, has an almost perfect track record and will all but guarantee twice the return of the stock market with a 99% success rate

Here’s an example of how it works and the returns you can expect;

A leasing company with a BBB+ rating, that’s investment grade, issued a bond with a 7.5% coupon rate that matures in four years, July 15, 2013. You can buy it now at a discounted price of 79 or $790 even though it was issued originally at 100 or $1000. When it matures it will pay you $1000 and you‘ll receive a current yield, based on your purchase price of 79, of 9.49% while you hold it.

The annual return for this investment is computed by adding all of the interest payments you will receive between now and July 2013, eight payments of $37.50 each (75/2), plus the capital gains of $210 at maturity, $1000 minus your cost of $790.

Divide your total return of $510, (8 x $37.50 + $210 = $510), by your cost $790 for a total return of 64.5%.

You held it for four years or about 48 months, so divide your total return 64.5% by 48 and then multiply it by 12 months for one year. 64.6 / 48 x 12 = 16.14% per year for four years.

Most of you are saying, so what? 16.14% per year is peanuts!

Really?

16.14% per year at age 50 can turn your puny annual IRA contribution, even if you have saved nothing to date, into $312,174 by age 65.

16.14% per year is twice the high end annual current return of the stock market.

16.14% in an investment grade bond, not junk, has a 99.7% success ratio over an 80 year period including the great depression.

You cold conceivably never have another loss between now and retirement.

If you’ve managed to save $100,000 and only fund your IRA until age 65 and earn as little as 10% with no more losses you can have about $618,000 at retirement.

That’s another $43,000 in income per year without ever touching your principal.

A portfolio of investment grade bonds with the right maturity ladder is the only way you can get the security and returns to make this strategy work.

You will not be able to retire if you continue to lose money in stocks.

There are alternatives to stocks and the losses they give you, but you have to make the effort to do something new. Check out the Bond Trader, it is averaging 13%+ per year in the exact type and quality of bonds I just described.

You have everything to lose if you don’t do this.

Source: Change How You Are Investing or Face Retirement At The Poverty Level

The All American Investor

Steve McDonald — Thu, 08 Jan 2009 14:30:20 +0000

America’s finest quality is that it has no memory! Three months ago, the topic of the day was which window to jump from; today all I hear is how hot the market is. This morning’s conversation on “Squawk Box” was how the market has moved 24 percent and maybe there is too much exuberance.

Too much exuberance? Last October we were wondering if there would be a run on the banks. Now it’s too much activity.

This complete lack of an ability to remember any bad news has a backside, you knew that was coming. The backside is that we also are blinded by the short-lived bad news.

For four months, almost every editor at “The Daily Edge” described the market this fall as the best buying opportunity of our lifetime. Virtually no one paid any attention.

The only thing more deficient than our memory is our ability to buy when things are cheap, stocks and bonds. We love to pay way too much for our investments.

Take bonds. Despite the fact that bonds are virtually immune to the day-to-day swings of the stock market, no one took advantage of bank bonds that dropped 50 percent and more during the insanity of last October and November. AAA, AA and A rated bank bonds were being given away.

Bank bonds that were recommended by The Bond Trader have returned 25 to 50 per cent in about three months. This was while your stock portfolio was being flushed away.

It wasn’t just bank bonds either. Companies that had nothing to do with the banking or brokerage crisis dropped like rocks, too. AAA and AA bonds were there for the picking at prices we may never see again. No one jumped in.

Here are two examples of bonds The Bond Trader recommended that have made huge returns. You can check the prices at a website called, investinginbonds.com. Just enter the CUSIP and check the trades during the months of September through November.

National City Corp.(NYSE:CYN) This is a small operation, relatively speaking, that does not rely on retail or mortgages for their business. They announced before the bailout was even approved that they did not need it, they were fine. Still their bonds dropped like a rock. The Bond Trader recommended it at 90 and again at around 60. (That’s $900 and $600 for those unfamiliar with bonds) CUSIP 634902LM0.

Right now, you can sell the bond for about $960 to $980. That’s in about three months. That’s a 62% return on an investment grade bond in a couple months. Fewer than 30 people bought it when it was recommended.

Here’s another one that went through the roof– Fifth Third Bank. The Bond Trader recommended it at 66, $660; today it’s worth around 97, $970. CUSIP 31677QAP4.

A great bank, that wasn’t really having any huge problems, was available for a song. Almost no one bought it.

Right now corporate bonds are running up in price so fast it’s not impossible, but it is getting difficult to find bargains. Yet very few are seeing it.

Americans have no trouble buying a car or SUV for $30,000, $40,000 even $50,000 that is guaranteed to be worth 20% less as soon as they drive off the lot, and 50% less in two years. Guaranteed! But they cannot see a bargain in the bond market when there is less than a 2% chance they could loose money.

That’s the 85-year average default rate for investment grade bonds, less than 2%. That means they win 98% of the time compared to a guaranteed 20% to 50% loss for a car. You know which one we love to do.

Finally, the most disturbing characteristic of the All American Investor is his willingness to insist he or she can make returns that are completely ridiculous. Read on.

Recently on CNBC, a guest commentator stated he felt investors were to blame for the Madoff scandal. My initial reaction was one of complete disbelief. How could a professional in our business say something so dumb? Hold the investors responsible for a $50 billion loss in a Ponzi scheme?

When I had time to think about it, he was right. It seems Madoff made insane claims, returns that no thinking adult could believe. Most legitimate trading houses on the street would have nothing to do with him. Yet investors lined up, even begged him to take their money. And take it he did.

Obviously Madoff is less than honest, but come on. How can you think one guy is that much better than the rest of the street? Too good to be true.

Yet investors did the “follow the big numbers” dance, once again, and got what everyone who thinks and acts this way always gets. You know the word for it.

We love big numbers, the more unbelievable the better.

The next four to six months will be rough, very rough, and the markets will continue to spit out the uninformed at the same rate they did for all of 2008. If you’re part of the pack that’s just now getting in, keep your perspective. Look to the second half of the year before things begin to settle down.

Let’s hope for a better informed 2009.

Source: The All American Investor

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Change How You Are Investing or Face Retirement At The Poverty Level

The All American Investor