Is the pullback in the market over… or is it just beginning?
That’s the question that seems to be on everyone’s minds right now… but the truth is, no one really knows the answer.
With this much volatility hanging over the market, internationally renowned and published income analyst Marc Lichtenfeld is warning investors that the risk of exclusively holding stocks is far too high.
Find out what he recommends you do instead.
– Nicole Labra, Senior Managing Editor
If you’ve read my Safety Net column or my other work in my e-letter Wealthy Retirement, you know I’m the dividend guy.
I believe so strongly in the power of investing in “Perpetual Dividend Raisers” that I spent two years writing my book Get Rich with Dividends to show investors why they must include this wealth- and income-building machine in their portfolios.
I write about dividend-growth stocks in Wealthy Retirement and various other places every week. I invest in these types of stocks for myself and for my kids.
So it may surprise you to know that I also own a healthy amount of bonds.
I have a mix of bonds, including corporate, Treasury, and municipal bonds.
My Treasurys have extremely short maturities – less than a year. I basically treat them as a place to park my cash but earn a little extra income.
My corporates and municipals also have short maturities, but not as short as those of the Treasurys. I’ll typically buy bonds with three-year or shorter maturities. I don’t want to be locked in for too long.
Most of the time when I buy bonds, I plan on owning them until maturity. I’m not interested in trading them.
Sure, if the price spikes above par value (the price at which the bond will be redeemed at maturity), I may consider selling early. But generally, I’m buying the bond to collect a consistent stream of income with the virtual certainty of getting my money back.
The important thing to remember when owning bonds is that you get the par value of the bond back at maturity… no matter what the bond, bond market, or economy is doing.
For example, let’s say you buy a bond at par value ($1,000) that yields 4% and matures in two years. That means you’ll collect 4% interest each year and receive your $1,000 back at maturity.
If the bond declines in value to $900 next year, that doesn’t matter – because you’ll still get your $1,000 back at maturity and you’ll still collect 4% interest in the meantime. The interest rate you’ll receive does not fluctuate with the price of the bond.
I like that kind of stability for a portion of my portfolio.
I keep my bond holdings relatively modest, because I’m still building wealth. I have years to go until retirement. But investors who have a lower tolerance for stock market risk might want to have a larger percentage of their portfolio invested in bonds than I do.
If you’re interested in bonds, I do NOT recommend bond funds or exchange-traded funds (ETFs). These investments will lose value as interest rates rise. Individual bonds may also lose value, but at maturity, investors will get their money back. There is no maturity on a bond fund or ETF, so there’s a much greater risk of losing money.
Lastly, it’s important to note that your bond positions aren’t likely to grow your wealth much, unless you buy bonds that are undervalued. You’re not going to get rich buying bonds. But you may stay rich.
Take it from the dividend guy.
P.S. If you can’t handle the potential for a major market downturn and you’d prefer to lock in a predetermined return instead…
I highly recommend you check out this video.
In it, I explain how investors can generate locked-in returns of more than 200% in as little as four years backed by legal contract… without having to ride the roller coaster that is the stock market.
Sounds pretty nice, doesn’t it?
Get the details here.
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