With global interest rates heading lower in a charge led by Europe and Asia and followed by the United States, it’s time to jump on the U.S. long bond (30-year) and lock in that juicy 2.33% yield…
Of course, I am joking.
The last place you should ever put your money is in a 30-year bond yielding 2.33%.
Worse, there is talk of a new 50-year Treasury that could be issued as early as next year.
That’s another one to avoid. Unless you are the U.S. government, a lower interest rate environment is not good for you.
When investing in a 30- or 50-year bond, especially at these levels, what you are essentially saying is that you cannot find another place to safely make 2.33% a year for the next 30 years!
With inflation running at 2% today (and probably more than that unofficially), you are losing ground every day and locking in future losses.
Government bonds have only one thing going for them, and that is safety. There is no safer investment than a U.S. Treasury.
After all, if the U.S. goes down, it doesn’t matter much what else you’re holding – cash, real estate or gold – they will all crash.
We don’t live in a gold standard world, but a fiat money world. That means we create money out of thin air and back it with the full faith and credit of the U.S. Treasury.
And because the U.S. dollar is the world’s reserve currency, the failure of any part of the U.S. monetary complex would result in a global monetary catastrophe.
Gold may seem like a great alternative until you head down to the local grocery store and try to cash in half an ounce… and expect change.
My colleague and friend Steve McDonald is Wealthy Retirement’s bond expert, and he recommends holding a bevy of bonds that are shorter in duration and yield much more than the 30-year bond.
Following Steve’s strategy is imperative because – and mark my words – when the 50-year bond is issued, it will likely pay just a fraction, maybe 100 basis points, more than the 30-year bond.
Do you know how many business cycles we will see in 50 years? Even the stock market with its ups and downs has proven to return more than 9% annually over 50 years, and that is with full risk!
The longest duration you should look at is 10 years or less. With market and business cycles changing so rapidly compared with the past, you must be nimble with your cash. Tying it up for 30 or 50 years is the opposite of nimble!
Yes, stocks do go down, but they also go up. And the returns from the stock market have dwarfed the return from every other type of financial asset over time… even if you bought in at the exact wrong time!
There are multiple products out there today, from preferred stocks to common stocks and certificates of deposit (CDs), that will give you a better return.
And if you want to venture a little bit further into the market, you can try covered call writing, a very conservative options strategy that can also deliver bigger gains.
Keep on the lookout here at Wealthy Retirement, and in my new e-letter Trade of the Day, as I walk you through it every step of the way!