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What Happens to Your Investments When the Trade War Is Resolved?

The threat of an ever-expanding trade war has been dragging down many investments in stocks. There are lots of doomsday scenarios out there predicting not only the collapse of the stock market but of the global economy. But, nobody wants a total disaster. Rather the Americans, Chinese, Europeans, and others all want the best deal they can get, short of creating a situation in which everyone loses. So, what happens to your investments when the trade war is resolved?

Economic Growth with Fewer Trade Worries

CNBC reports that Goldman Sachs sees a possible stock market surge. In response to questions from investors, Goldman looked at where to invest if trade tensions fall and the economy continues to perform well.

The looked at what would happen if trade tensions fade, the Federal Reserve stops raising rates after two or three hikes and economic growth continues to rise. Under such a scenario, Goldman’s estimate for S&P 500 2019 earnings per share would rise by 3 percent, to $175, and a lower-than-expected Treasury yield would enable a market price to earnings multiple of 18 times. This would lead to a year-end price target for the S&P 500 of 3,150, 11 percent higher than Friday’s close.

Where would the growth, or recovery, occur in the event trade tensions ease off? We wrote recently about companies hurt or at least threatened by trade worries. Harley Davidson moving production out of the USA in response to a trade war was one. The other was Boeing outsourcing production to retain foreign business and remain profitable. Boeing is obviously the bigger issue as their exports rival the dollar value of all US agricultural exports. If the threat of a trade war eases, Boeing will be a likely beneficiary. And, then there are US food exporters like Tyson.

Tyson exports beef and poultry and has been hurt by the evolving trade war. Seeking Alpha sees Tyson as underpriced in relation to its long term (intrinsic stock) value.

This morning, Quad 7 Capital’s BAD BEAT Investing discussed Tyson Foods (TSN) as a buy strong buy under $60. Here is the deal. With fears over inflation, rising feed and labor costs, and international tariffs, investors have been jumping ship. We believe at $59 a share, the Street is mispricing the stock. In this column, we will describe what we are seeing in this leading world supplier of proteins to industry and retail supermarkets. Currently, we have seen an extended selloff and we believe it is time to get long.

What happens to your investments in Tyson when the trade war is resolved? Its exports will surge, its profits will increase, and its stock price will likely go up. This may be the ideal sort of investment to make if you believe that cooler heads will eventually prevail and an all-out trade war will be avoided.

If you have been invested in US exporters who have been hurt by the threat of an all-out trade war and you believe that the trade war will fizzle instead of flare up, consider staying with those investments as they may well recover very nicely.


Could Your Investments Lose 30% of Their Value Next Year?

Earnings have been driving growth in the stock market. A trade war is developing and we are entering the 9th year of an economic expansion. CNBC writes that 20% earnings growth is not sustainable and predicts that stocks could plummet 20% to 30% next year.

“You could be looking at the first 20 percent-plus decline in the S&P since the financial crisis,” the firm’s chief U.S. strategist said Tuesday on CNBC’s “Futures Now.”
His worst-case scenario is a 30 percent plunge next year.

“Our primary list of concerns is on the earnings front,” Clissold said. “Earnings growth north of 20 percent isn’t sustainable, especially when you’re nine years into an economic expansion.”

Clissold, a secular bull, isn’t calling for a major, drawn-out recession. Nevertheless, he said he’s on bear market watch due to warning signs indicating a tired bull market.

So, could your investments lose 30% next year due to a tired bull market, trade war, and wavering investor sentiment? What kinds of investments are at risk? And what are safe investments to hold today?

Safe versus Risky Investments

Any stock that is still going up in price based on investor optimism needs to also have strong intrinsic value or it will end up causing a 30% loss or worse. Last spring we asked what can you invest in and not get hurt by a trade war.

Of late we have written about switching investment focus from growth to value as we have been ruminating about the possibility of a stock market crash, economic recession, and collapse of the real estate market, all caused by a trade war. Materials stocks have been hurt by Trump’s announcement of tariffs on steel and aluminum. The bull market has been historic and is likely to cool off if we are lucky and collapse if we are not. How can you invest and not get hurt by a trade war?

Companies that get their raw materials locally and do business primarily in the USA are largely immune from the effects of a trade war. Biotech is also largely protected because when someone comes up with a cure for diabetes or cancer it will be a money maker no matter what else is happening.

Companies with lots of business in China, Europe, Mexico, and Canada are at risk as are companies that get their raw materials from any of these regions. Boeing stands to lose badly if foreign buyers move in bulk to purchase jets from Airbus. Apple gets nearly two thirds of its revenue from offshore and 30% from China. Likewise, Ford has a large offshore presence that could be hurt in a trade war. A larger issue for a company like Apple is that it manufactures many of its parts offshore making them subject to tariffs.

Could your investments lose 30% of their value next year? If you are not sure about how to deal with the possibility of a market correction, consider how to invest without losing money while the economy, trade issues, and the markets are sorting themselves out. A well balanced investment portfolio commonly includes high grade bonds to protect against exactly this kind of risk.

Could Your Investments Lose 30% of Their Value Next Year? PPT


Is This Going to Be a Painful Correction for Unwary Investors?

If you have ridden the bull market to higher and higher levels, is it time to take a little off the table and realize profits? The old saying is, by the way, that you do not have a profit until you take a profit. Is this going to be a painful correction for unwary investors? Market Watch notes one warning indicator which says that serious pain awaits investors.

One of those measures, in particular, has popped up on investor radars lately, and that’s the “Buffett indicator.” The Berkshire BRK.A, +2.83% boss called it “the best single measure of where valuations stand at any given moment.” If historical patterns hold true, a thrashing could be in store for complacent investors.

Put simply, the indicator is the total market cap of all U.S. stocks relative to the country’s GDP. When it’s in the 70% to 80% range, it’s time to throw cash at the market. When it moves well above 100%, it’s time to lean toward risk-off.

Where’s it now? Approaching 140% and a new record high.

A successful long term investor like Buffett relies on the strength of the US economy to drive up the value of his investments. Using intrinsic value as a guide, value investors buy stocks that they understand and stocks that are underpriced in relation to expected long term earnings. Those long term earnings are usually tied to the strength of the US economy. When the value of all US stocks grossly exceeds the value of the US economy, a painful correction is in store.

How Painful Might a Correction Be?

The last two times the total market cap of all stocks grew above the US gross domestic product, the end results were the 2008 stock market crash and the dot com crash. In each case, the losses were huge. The dot com crash erased about $6 Trillion in value. The 2008 financial crash erased closer to $14 Trillion. In the 2008 crash the S&P 500 was cut in half before it started to rise again.

Benefiting from a Market Correction

All of that having been said, not everyone lost money in the dot com and 2008 market crashes. Those who had the foresight to buy puts on their big winners walked away with their profits (minus the cost of the option contracts). Those who simply purchased puts on the most vulnerable stocks made out like bandits and are probably sipping rum drinks and lounging by their pools on their own tropical islands.

Timing a Market Correction

Because perfect market timing is impossible, it can be really difficult to decide when to get out and when to stay in. This is where options are useful because, for a small insurance fee (the premium) one can protect an investment portfolio or nail down a selling price throughout the duration of the options contract. All of this you can do for simply the premium paid for the contract. The leverage that options trading offers can result in spectacular profits when other unwary investors are losing their shirts.

Is This Going to Be a Painful Correction for Unwary Investors? PPT


How to Profit When Other Investors Lose Their Shirts

Whoa! What happened to Facebook? The stock lost just over twenty percent of its value in four days between July 25 and July 30. If you invested in the stock a few months after the IPO in 2012 you bought Facebook for $18 a share. And, if you had sold at the peak on July 25th, you would have gotten $217.50 a share for an eleven-fold, 1,100% profit. We all wish we had the foresight to spot every Facebook opportunity in order to buy and sell at the right times. But, successful investors live in the “now” and not in the past. A lot of people lost a lot of money when Facebook’s market cap fell by more than $100 billion. But, not everyone lost money in the last few days with Facebook. We would like to consider how to profit when other investors lose their shirts, when stocks like Facebook correct or crash.

How to Profit When Other Investors Lose Their Shirts

  • Take timely profits
  • Be a contrarian
  • Options trading

How to Profit When Other Investors Lose Their Shirts: Take timely profits

An old but still-useful investment strategy is to take a profit when you make a profit. As the Facebook experience shows, just because the stock price when up, you did not make money. You only make money when you sell. Because, any investment can always fall in value. The problem with this approach is that you miss out on more profits if the investment continues its upward climb.

How to Profit When Other Investors Lose Their Shirts: Be a contrarian

Warren Buffett famously said that investors should be fearful when everyone else is greedy and greedy when everyone else is fearful. If you combine this contrarian approach with sound analysis of intrinsic stock value, you greatly improve your odds of making a profit when other investors lose their shirts.

How to Profit When Other Investors Lose Their Shirts: Stock options

We have written about how to use options to protect your investment portfolio and how to make money selling options. Another approach is to use options to make money whether a stock goes up or down. Wisely placed options trades take advantage of the leverage that options offer and limit any potential losses to the price of an option contract. We are currently featuring such an approach by the Weekly Money Multiplier in an upcoming webinar. Attend the webinar and learn how to profit when other investors lose their shirts.

The Horse Is Not Out of the Barn

CNBC writes that the horse is out of the barn with Facebook and other tech darlings.

Fears of a widespread tech wreck have been greatly exaggerated, says BTIG’s chief equity and derivatives strategist Julian Emanuel.
Even as Facebook, Twitter, Netflix and Intel were taken to the cleaners after recent earnings reports, Emanuel says one area of the market suggests the selling has reached its peak.

Perhaps Facebook is done falling and maybe it will come back. Or, maybe it will keep falling. For options traders, how to profit when other investors lose their shirts is to be alert for opportunities and learn to limit losses and magnify profits with well-placed trades. If you want to learn how, sign up and attend the webinar.

How to Profit When Other Investors Lose Their Shirts PPT

How Do You Choose an Investment to Buy and Hold?

The richest people in the world started successful companies or bought into them. And these people retain ownership over the years. You may be too late to found Microsoft, Walmart, Amazon.com, or Berkshire Hathaway but you can follow the examples of these folks. Buy and hold value investing, when you choose the right investments, results in profits that continue for years and years. Why does this approach work? And, how to do you choose an investment to buy and hold?

How Do You Choose an Investment to Buy and Hold: Why Does This Work?

We like the Warren Buffett quote that the first rule of investing is not to lose money and the second rule is to not forget the first rule. We have written recently about the importance of not losing money when investing and how you have to increase your rate of return on an investment to recoup losses and get back on track after a year or two of losses. Likewise we wrote about how to invest without losing any money by focusing on bonds held to maturity. Although you can make a lot of money in a bull market, too many investors stay with volatile investments too long because they are unable to profitably time an investment cycle. Why a successful buy and hold investment works is because you do not waste money on repeatedly buying and selling and incurring excessive overhead that eats away at your gains. And, a solid long term investment provides appreciation as well as dividends. The long term in this case is ten years or more, which is enough time to average out the gains and losses of an investment cycle.

How Do You Choose an Investment to Buy and Hold: Choosing Investments

A recent article by The Motley Fool highlights three cheap big pharma dividend stocks that they suggest you can buy and hold for many years.

One of the greatest enemies of investors is trading too frequently. Jumping in and out of stocks too often dramatically reduces returns over the long run. That’s why it pays to find stocks that you can buy and hold onto for years.

Stocks that meet three criteria often make the best long-term picks. First, their valuations should be attractive. Stock valuations tend to revert to their means over time. Second, they should pay great dividends. Don’t underestimate how important reinvested dividends are to total returns. Third, the stocks should have solid long-term growth prospects.

Their three suggestions are AbbVie, Gilead Sciences, and Pfizer. In each case, the main reason to choose these companies is new medications in the pipeline and strong research and development which will provide revenue far into the future.

Long term revenue is the key to choosing an investment to buy and hold. This is the basis of using intrinsic value as a guide to investing. The key to using this approach is to stick with companies whose business models you understand (and are easy to understand) and which will likely work to provide profits into the long term future. But, buy and hold does not mean buy and ignore. The classic example of a business plan that technology changes made obsolete is Eastman Kodak. These folks invented the personal camera and film and were the world leader for most of the 20th century. Then digital came along, and their business plan did not work. When you choose an investment to buy and hold you still need to pay attention.

How Do You Choose an Investment to Buy and Hold? PPT

Is There a Best Time to Put Your Money into an ETF?

ETFs (Exchange Traded Funds) have become an increasingly popular means of investing in stocks. Today we consider this. Is there a best time to put your money into an ETF? But first, here is a little refresher about ETFs. Many investors have switched from mutual funds to ETFs. Investopedia explains the difference between exchange-traded funds and mutual funds.

ETFs trade throughout the trading day, like stocks, while mutual funds trade only at the end of the day at the net asset value (NAV) price. Most ETFs track a particular index and as a result have lower operating expenses than actively-invested mutual funds. Thus, ETFs may improve your rate of return on investments. In addition, ETFs have no investment minimums or sales loads, unlike traditional mutual funds, which often have both.

And there are tax benefits to ETFs versus mutual funds.

ETFs create and redeem shares with in-kind transactions that are not considered sales. Thus, taxable events are not triggered. Redemptions create tax events in mutual funds, but they do not create tax events in ETFs. When a forced sale of stock occurs, mutual funds record and distribute higher levels of capital gains than ETFs.

In addition, ETFs have greater tax efficiency due to a structure that allows them to substantially decrease or avoid capital gains distributions altogether. This difference can greatly affect the overall rate of return, even if an ETF and mutual fund both track the identical index.

Passive investors have found that, all too often, managed funds like mutual funds do not do as well as the overall market. Because ETFs are typically index funds, they track the market. So, ETFs may well be an ideal way to invest. But, is there a best time to put your money into an ETF? It turns out that there is!

Is There a Best Time to Put Your Money into an ETF: When Outflows Are High

Market Watch reports on a study by Deutsche Bank in an article about why it pays to be a stock market contrarian.

According to Deutsche Bank, not only can going against the current provide dramatically better gains over time than following the herd, but it also does notably better than a simple buy-and-hold plan.

The investment bank conducted a study examining how exchange-traded funds performed following periods of high inflows or outflows. While flow data can be messy – not only are they extremely volatile for the largest funds, but inflows can mean an investor is building a short position, which means he or she is betting the fund will decline in price – the results were dramatic. A portfolio that bought exchange-traded funds with substantial outflows saw significantly higher gains than one that moved with the herd – buying funds with heavy inflows.

This is a simple example of the investing maxim to buy low and sell high and is the basis of contrarian investing. It is also typically consistent with the use of intrinsic stock value analysis as a guide to investing instead of simply following the herd!

According to the Deutsche Bank study, an investor who always buys when inflows are highest will earn less than 50% of what someone earns who always buys when outflows are highest!

Is There a Best Time to Put Your Money into an ETF? PPT

Can You Profitably Time an Investment Cycle?

Profitable investing comes from picking the right asset classes to invest in and handling your investments in such a way as to avoid losing money, instead of gaining profits. The value of an investment comes from its expected future returns. This expected future ROI is what intrinsic value is based on. And, as the economy rises and falls, so do the value of investments. What investors are willing to pay for an investment rises and falls with market sentiment. Thus the economy and the perceptions of other investors help drive an investment cycle. The best time to invest is at the start of the investment cycle and the best time, obviously, to take profits is before the end. But, how can you profitably time and investment cycle?

Can You Profitably Time an Investment Cycle: The 4 Phases

An investment cycle has four parts:

  • Accumulation
  • Mark-up
  • Distribution
  • Mark-Down

Accumulation

The accumulation part is in the late stages of a substantial market correction or crash. Many investors are throwing in the towel. But, this is when the smart money enters or re-enters the stock, bond, and real estate markets. Can you profitably time an investment cycle by purchasing at this time? The key to success at this point is to be sure that the market has bottomed out. At this time competent intrinsic value calculations will indicate what investments to buy.

Mark-up

The start of the mark-phase of the investment cycle is when many investors get confused. Unemployment is worsening but many stocks are going up in price. This is because the market discounts what it believes will happen. The prices of stocks and other investments have already bottomed out. Smart investors are cherry picking the best opportunities and starting to see gains.
The mark-up phase becomes self-perpetuating as more and more investors re-enter the market and prices get bid up across the board. This is when the rising tide raises all ships. Unfortunately, late-entering investors expect to see the same profits continue and they bid up prices beyond what fundamentals will support. Can you profitably time an investment cycle at this point? Again, you should rely on intrinsic value, as some companies will still be making money and are good long term investments, while others will be due for a fall.

Distribution

The distribution phase of the investment cycle is when the folks who bought in phase one and early in phase two start to take their profits. There are as more sellers than buyers. Prices become volatile. Those who successfully anticipate the swings of the market will profit and those who do not will sustain losses. Can you successfully time an investment cycle at this point? Yes, you can. You can start to take profits and adjust your portfolio to a more defensive posture.

Mark-down

The mark-down phase of the investment cycle is when prices are in steady decline. This can be gradual or it can be precipitous, when driven by an economic recession, social unrest, or war. Depending on whether or not you are still invested at this point, the question will be if you can hold on until the cycle starts again after the markets have bottomed out. The key factor at this point is the quality of the investment you have. If you own investments that are likely to weather the storm and even come out stronger on the other side, you might as well hold on. If you entered the market late and purchased junk, you might as well sell for pennies on the dollar before your investment is worthless.

Can You Profitably Time an Investment Cycle? PPT

How Do You Choose Which Assets Classes to Invest In?

You have enough money to start investing. But, before you consider how to start investing in the stock market, you want to get your financial house in order. Our article on that subject suggests that the first thing to do is pay off your credit cards and the second is to buy your own home. Once you have a rainy day fund in the bank for emergencies you want to consider investments. The stock market is a good choice but it not the only one. What other asset classes are there? Stocks, bonds, short term investments (cash), and real estate are the basic four. But, how do you choose which asset classes to invest in? Let’s look at each of the big four and then commodities (gold).

How Do You Choose Which Assets Classes to Invest In: Stocks

Stocks have two basic things going for them. Over the years the US stock market has outperformed real estate, bonds, and money in the bank. And, the stock market offers liquidity that real estate investments lack. You can buy a stock one day and sell it the next. Try doing that with a piece of real estate! So, why shouldn’t you put all of your investment capital in stocks? If you remember the 2008 stock market crash, the dot com crash, or the various other market crashes going back in time you can see that there can be risk in investing in stocks. There are ways to deal with that risk such as by choosing a range of stocks instead of just one or two and learning to assess intrinsic stock value as a guide to profitable investing.

How Do You Choose Which Assets Classes to Invest In: Bonds

We discussed treasury and corporate bonds in our article entitled how to invest without losing any money.

US Treasury bills have maturities of a year or less. US Treasury notes have maturities from two to ten years. And, US Treasury bonds have maturities of ten to 30 years. Each of these investment vehicles is backed by the “full faith and credit” of the US government. The risk of loss of any of these if held to maturity is nil.

How to invest without losing any money in US Treasuries is to hold them to maturity or only sell them at a profit.

The same approach applies to AAA corporate bonds issued by Johnson & Johnson or Microsoft. These asset classes do not outperform the S & P 500 over the years but they do outperform a lot of individual stocks. If want you want is to keep your money safe, not lose any, and make a decent rate of interest along the way, bonds as an asset class are a good addition to any investment portfolio.

How Do You Choose Which Assets Classes to Invest In: Cash and Short Term Investment Vehicles

If you believe you will need your money fairly soon, you do not want to tie it up in stocks, long term bonds, or real estate. Any of these asset classes may go into a slump and that would mean that you lose money when you take your cash. A good way to get a little interest on your money is to create a ladder of short term bonds or even CD’s at your bank. You will always have cash available when needed. This asset class does not outperform any of the others but it is the most flexible. There are a lot of smart investors who hold cash when they do not trust which way interest rates, the stock market, or real estate prices are going.

How Do You Choose Which Assets Classes to Invest In: Real Estate

Your own home is the real estate investment that you need to make first and foremost. Long term real estate investment is a skill that needs to be developed over the years and hopefully not by losing money along the way. If you want to take advantage of profits from real estate and not sink all of your money into a piece of property, consider REITs which are real estate investment trusts. These are investments you can get  into for a reasonable amount of money and get a good return. And, you do not need to manage the property yourself!

How Do You Choose Which Assets Classes to Invest In: Gold

Gold bugs think that sooner or later all paper currencies will be worthless. Thus, the only way to retain any value for the future is to hold precious metals. The problem with gold is that it does not pay a rate of interest and its price goes up and down. If you want to have a little gold as a reserve, just in case, there are to viable approaches. One is to simply wait for the price of gold to plummet and then buy. The other is to use cost averaging. Buy the same dollar amount of gold every month or so. Gold is a valid hedge against catastrophic economic and social events but the S & P 500 has been a better choice over the years.

How Do You Choose Which Assets Classes to Invest In? PPT

Importance of Not Losing Money When Investing

The bull market is aging and a potentially damaging trade war is ramping up. With investment risks in mind, we have written a lot recently about investing without losing money, what criteria to choose investments, safe investments for retirement, and the risks of offshore investing. A recurring theme has been the importance of not losing money when investing. One does not need to look any farther than a Warren Buffett quote to understand the importance of this subject. The Oracle of Omaha said that the first rule of investing in not to lose money and the second rule is not to forget the first rule! When the market is going up, why is it important to think about not losing money? It is all in the arithmetic.

Importance of Not Losing Money When Investing: The Arithmetic

If you have an investment that routinely appreciates at 10% a year, you should be happy. Let’s assume that this is a stock that does not pay dividends. The value per share just goes up 10% year after year. If you started with $10,000, where does that get you at the end of each year?

Exponential growth of a sound investment

  • Year 1: $11,000
  • Year 2: $12,100
  • Year 3: $13,310
  • Year 4: $14,641
  • Year 5: $16,105.10
  • Year 10: $25,937.42

This is a nice return on investment. But, what if, rather than a 10% gain every year, there are some losses thrown into the picture? What kind of rate of return do you need the next year to make up for one year losses of 10%, 20%, 30%, 40% or 50%?

Rate of return needed in one year to make up for losses in the preceding year

  • Loss = 10%, required return the next year = 11.11%
  • Loss = 20%, required return the next year = 25%
  • Loss = 30%, required return the next year = 42.86%
  • Loss = 40%, required return the next year = 66.67%
  • Loss = 50%, required return the next year = 100%

The obvious point of this little arithmetic exercise is that if you lose money on an investment, you have less money to work with. Thus, you need a higher return on investment to get your original investment back. And that simply assumes that you are back to ground zero. Forget about that original year after year exponential growth! Buffett is a smart guy, but to understand his advice, you only need to do the arithmetic.

Importance of Not Losing Money When Investing: What Are Your Options?

If you had simply put your money in CD’s at the local bank in the days leading up to the 2008 stock market crash you would not have lost any money. But, if you had left your money in CD’s you would have experienced a period of historic low interest rates. The ideal solution would have been to pull your cash out of risky stocks when the market looked suspect and then re-invest when the market bottomed out. But, how would you know?

Intrinsic Stock Value

Perfect market timing is impossible. But, there are general principles that help an investor decide “when to hold em and when to fold em” to quote Kenny Rogers and The Gambler. An approach invented by Benjamin Graham is called intrinsic stock value.

The dictionary definition of intrinsic stock value is its fundamental value. It is obtained by adding up predicted future income of a stock and subtracting current price. It can also be seen as actual value of an equity versus its book value or market value. The concept of fundamental analysis of equities evolved from this concept. Using fundamental analysis the intrinsic value of a stock is the expected company cash flow discounted to current dollars. It is a discounted cash flow valuation.

Successful long term investors do not bet on the stock market. They only invest in a company when they understand its business model and when they can reliably predict that the business model will create profits into the indefinite future. There were successful long term investors who simply got out of the stock market in the run-up to the 2008 crash. And, there were those who simply stayed in the market and rode the subsequent bull market to increasing gains over the years. The key to their approach is understanding how the company makes money and how its approach will continue to work, or not, over the years.

Importance of Not Losing Money When Investing PPT

Picking Safe Investments for Retirement

There is a difference between investments that are currently making money for you and investments that will be safe into your retirement years. A sad example of investors who did not exercise due diligence with their investments is the Bernie Madoff pyramid scheme. One hundred seventy-six individuals, banks, pension funds, and charities were invested with Madoff and happy to be getting a great return on their money. When the Madoff house of cards collapsed there were $65 billion in faked gains and investors lost about $18 billion of their investment capital. Picking safe investments for retirement is a skill separate from making money in stocks, real estate, and other investment vehicles. The fact of the matter is that when you are retired you will want to enjoy retirement and be spending all of your time watching your portfolio. How can you invest safely for retirement and not end up like Madoff’s clients?

Picking Safe Investments for Retirement: What Are Some Choices?

  • US Treasuries
  • Inflation Protected Treasuries
  • AAA Corporate Bonds
  • Dividend Stocks
  • Real Estate Investment Trusts
  • ETFs

Picking Safe Investments for Retirement: US Treasures, Inflation Protected

In our article about how to invest without losing any money, we mentioned US Treasuries.

US Treasury bills have maturities of a year or less. US Treasury notes have maturities from two to ten years. And, US Treasury bonds have maturities of ten to 30 years. Each of these investment vehicles is backed by the “full faith and credit” of the US government. The risk of loss of any of these if held to maturity is nil.

How to invest without losing any money in US Treasuries is to hold them to maturity or only sell them at a profit. Investors lose money in treasuries if they buy when interest rates are low and sell when rates are high. If you buy treasuries when rates are really high you have the choice of holding to maturity and enjoying the return on investment or selling for a short term profit.

If you expect to need to use the principal from your investments over the years, construct a ladder of Treasury bills, notes, and bonds so that you will not need to sell bonds at a loss due to high interest rates.

The inflation protect variety of Treasury is a good idea if you expect inflation to take hold again like in the 1970’s. In such a case the return on the Treasury is adjusted for inflation.

Picking Safe Investments for Retirement: AAA Corporate Bonds

AAA investment grade corporate bonds are about as safe as US Treasuries. The two US companies that issue AAA grade bonds are Johnson & Johnson and Microsoft. As with Treasuries, create a ladder of bond maturities so that you do not need to sell long term bonds at the wrong time.

Picking Safe Investments for Retirement: Dividend Stocks

In this case, you do not necessarily want the highest dividend. What you want is the most secure dividend. The Motley Fool published a list of companies that have been paying dividends for more than a century.

  • Johnson Controls
  • Stanley Black & Decker
  • ExxonMobil
  • Eli Lilly
  • Consolidate Edison
  • UGI
  • Procter & Gamble
  • Coca Cola
  • Colgate Palmolive
  • York Water

In retirement, it is a nice thing to get a dividend check or two every quarter. And, it is nicer, if the dividends are likely never to stop. If the past is any guide, these companies are a good bet for retirement investments.

Picking Safe Investments for Retirement: REITs, Real Estate Investment Trusts

The rationale for picking a real estate investment trust is that these investments tend to do well even when the stock market falters. And these investments pay dividends as well.

Picking Safe Investments for Retirement: ETFs

In retirement it is a good idea not to put all of your investment eggs in one basket. Thus, investing in a mix of US Treasuries, corporate bonds, dividend stocks, and REITs is a good idea. For the stock market in general, an ETF or exchange traded fund is a good way to benefit from the steady rise in value of the market while avoiding losses from an individual stock.

Picking Safe Investments for Retirement PPT


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