"bonds"

Today is a “lecture you guys day,” so get ready.

Nobody can seem to talk about anything but a bubble in stocks, or stocks are overvalued, or the similarity between 1987 and now.

So what!

The vast majority of retired investors ignore bonds, all bonds. Not because they are risky; just the opposite is true. And not because they don’t pay enough; some actually beat the stock market.

No, the reason is they don’t know enough about them to make a rational choice.

The least understood investments are not options, stocks or even commodities: they are bonds. And this lack of bond knowledge is costing retired folks a lot of money in income, capital gains and losses in stocks they shouldn’t own.

I don’t know about you but I am really tired of the nonstop predictions by the money press and the media of a crash or market correction. Now there is even one out there about corporate bonds.

If I have learned one thing in the past 30 years it is when the TV and money press talk about something, especially a sell-off as much as they have been recently, it has already happened or it isn’t going to happen. Not for a while anyway.

Here’s something that, as the Club’s bond person, I never thought I would be talking about.

Gold in a bond portfolio as a hedge against increasing interest rates

First, if you haven’t started to restructure the fixed-income portion of your investments to accommodate increasing rates, you aren’t paying attention. And that’s irresponsible.

This week’s 2 Minute comes in the form of a warning about some stocks. A recent Barron’s article focused on a trend in stock picking that should be a big red flag for all investors… especially the retired.

The article cited 163 companies being recommended by analysts that have already exceeded their target price. That means the stocks are still buys, but have moved past the target price the analysts listed when they recommended them.

As stocks inch their way back to all-time highs, one industry that has yet to recover is steel. Yet, as the industry drags, host Steve McDonald sees a huge opportunity.

A very dangerous and costly trap is developing in the debt markets and it is pointed right at retired investors.

Since the end of January, record amounts of money have been pouring out of stocks and into bonds. But this is not the usual flight to safety.

One of the costliest errors people make in their retirement planning is focusing all of their efforts on getting to retirement but forgetting about how to get through it. The idea of protection and sustainable income in retirement never seems to make it into their thinking.

That’s because retirement plans, for those who even have a plan, and there are very few who do, are never updated. Most plans still sit on the shelf where they were placed immediately after being received.

Tax-free bonds have always been the only way to increase your income, reduce your tax bill and increase the safety of your portfolio, all in one neat little package.

But bankruptcies in Harrisburg, Detroit and a couple of small California cities, combined with the crushing effect of the $2 trillion pension and benefit liability municipalities have run up, have cast a dark shadow over what has historically been a true safe harbor for retired people.

The muni market has really had a tough ride for the past year or so.

This is another chapter is the series of how to not wake up broke in your 80s.

Since the 2008 crash, the tendency of almost all small investors is to be too conservative. The result is what I call a safety trap, and it will devastate a portfolio just as being too aggressive will. It just takes a little longer.

The culprit is inflation, and if your money isn’t growing faster than the long-term inflation rate, you’re in line for a huge, very bad surprise.