Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

How a 1% Gain Can Destroy Your Retirement Dreams

Stock-Markets / Pensions & Retirement Sep 10, 2013 - 01:47 PM GMT

By: Money_Morning

Stock-Markets

Robert Hsu writes: This has been the bond market's worst showing in 19 years, thanks to the recent spike in the 10-year Treasury yield. But bond investors aren't the only ones getting hit.

A higher "risk-free" rate affects you, too. And me. And anyone else trying to grow their money.


It's time to make an adjustment.

A big one.

So let's look at three new "dead money" investments, and one that's "living large" - a company that can give you what few others still provide: a steady double-digit annual return, year after year.

But we'll start with the shift itself, because this seemingly benign 1% move has triggered what could be the single greatest risk to your retirement dreams...

Like 1994, But (Much) More Devastating

The yield on the 10-year Treasury note is just under 3%, and though that doesn't seem like a very destructive number, it is the highest rate on this benchmark interest rate metric since July 2011. More important, however, is the tremendous rate of change in the 10-year yield over the past four months, and it demonstrates how a 1% "spike" in interest rates can have a devastating effect on your retirement plans.

On May 10, the yield on the 10-year was 1.90%. Nearly four months later that same yield was 2.90%. This 1% headline move in the yield actually represents a 52.5% spike in the metric, an extreme rate of change that has sent bond prices tumbling, and with it the value of millions of retirement accounts holding Treasury bonds.

Indeed, the move higher in the 10-year yield has wreaked havoc on traditional income investments, because as bond yields rise, bond prices fall. This inverse relationship between yields and bond prices is the main reason why the bond market is having its worst year since the notoriously destructive 1994.

This time around, the spike higher in bond yields and concomitant drop in bond values could have an even more detrimental overall effect, and that's because there are many more investors that are either in retirement or nearing retirement, which means there are more traditional fixed-income investors today than there were 20 years ago.

Unfortunately, the Wall Street marketing machine has sold retirees on the idea that Treasury bonds are "low-risk" assets, but as we've seen this year, these bonds offer little or even negative returns in exchange for this so-called "low risk."

For example, one of the most widely held bond funds right now is the iShares Barclays 20+ Year Treasury Bond (TLT), which yields approximately 2.90%. In exchange for that yield, you've been dealt about a 15% loss in the price of that fund since May. Another widely held bond fund is the iShares iBoxx $ Investment Grade Corp. Bond (LQD). This fund offers investors a yield of 3.9%, but since May the share price has plummeted more than 8.5%.

As you can see, these so-called "low-risk" bond funds are anything but low risk.

Unfortunately, the idea promulgated by the big brokerage houses and sold to unsuspecting income seekers has caused many trusting investors to pile into the same "safe" investments. And as we've seen this year, when a trend reverses and catches so many investors off guard, the risk of a big panic selloff is exacerbated.

Think of this phenomenon as akin to shouting "Fire!" in a crowded theater. When the stampede for the exits ensues, people tend to get hurt badly.

So, what can you do to make sure you don't get trapped in a wealth-destroying mass exodus?

Invest in the "New Income"

The latest "1% move" in the 10-year yield is, in my opinion, the first of many such moves. In fact, we could see the yield on the 10-year rise to 5% or even 6% over the next several years, back to the level where this metric was before the global financial crisis hit.

If I am right about this, it means that the value of traditional income investments will continue to decline for years to come. It also means that if you want to capture the income you need to fuel your retirement, you have to start looking at your money with a growth-oriented eye. (You'll see what I mean.)

You'll also benefit from more sophisticated income-generating strategies involving options and unconventional income-producing assets, such as energy transport partnerships and other growth-oriented assets - if, that is, you want to keep your money from getting destroyed by rising interest rates.

Don't worry. If you're new to "income acceleration," it's not difficult. Plus, I'll walk you through the whole process.

In the meantime...

Part II: Three "Dead Money" Investments and One "Living Large"

Tomorrow, we'll look at the last thing anyone wants to hold: dead money.

You'll find three new forms of it.

The first one is obvious, but I want to cover it anyway. Any money you have in this asset will be in "zombie zone" far longer than anyone thinks.

The wealthiest 1% adores the second investment. And millions of buy-and-holders rely on the cash flow from the third. But beware.

And get ready for a double-digit "pay raise"...

The company I'm going to show you is growing quickly. And growth, as you'll see, is the new income...

Source :http://moneymorning.com/2013/09/10/how-a-1-gain-can-destroy-your-retirement-dreams-part-one/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules