Team Alpha 375

"You can be young without money but you can't be old without it."

Tennessee Williams

The No-Sweat Retirement
By Steve McDonald

The perfect retirement for some people is a round of golf every day and no money worries. The golf part will be easier for most than the money.

Generating a comfortable income stream, beating inflation, and sweating bullets about the next interest rate increase are challenges you don't have to face.

There is one investment that will deliver long-term stock market returns and give you the peace of mind that will allow you to enjoy your time off. It just happens to be the least understood investment, maybe the most misunderstood is a better way to describe it, and is avoided for that reason by almost all investors.

Investment-Grade Corporate Bonds

If you're like most people, your understanding of bonds is limited to savings bonds and simple Treasuries.

But did you know that a certain portfolio of ultra-short maturity (less than five years), investment-grade corporate bonds, (no junk) had an annual return for closed trades in 2009 of 42 percent per year. That was while you and your friends were going to bed at night wondering if you'd have enough money from your stock accounts to live on in retirement.

Sounds crazy, right? Try this one for size.

This same portfolio of bonds had only two losses during the same period -- one for 2 percent and the other for about 7 percent. That was out of about 100 recommended bonds. Two losses!

This portfolio also generated an income stream of around 6 percent. Your money markets generated less than 1 percent during the same period.

Now for the killer.

Investment-grade corporate bonds, like those in the portfolio I mentioned above, had a 99.7 percent success ratio over an 80-year period, 1925 to 2005. Moody's did the study. It's on the Internet.

The track record for these bonds hasn't changed during the financial crisis of the past few years. In fact, most of these bonds were going up in value while the stock market was crashing in early 2009.

These bonds give you reliable income far above what you can get almost anywhere else. They also have an 80-year record of paying exactly as advertised, inflation protection from the ultra-short maturities and virtually instant liquidity if you need your cash out in a hurry.

So why aren't you investing your money in these bonds? They could be the best option available for the average person heading to -- or already in -- retirement. Yet, they continue to be the exclusive domain of fund managers and really big money folks... because the average guy knows nothing about bonds.

I know what you're thinking: "I don't have enough money to invest in bonds. Bonds are just for really big investors, right?"

Wrong!

You can buy just one bond if you're really on a tight budget. That'll cost you $1,000 or less. Ideally, Ideally you would want to have a minimum of five different bonds, diversified to add an extra layer of safety. That'll cost you $25,000 or less.

If you are over the age of 50 and have less than $25,000, you have more problems than not understanding bonds.

The next issue people have with bonds is: "But I can't commit my money for 20 or 30 years."

Bonds of the type I have described can be purchased with as short a maturity as six months, and you can sell at any time. You can trade them for capital gains at any time, too.

The portfolio I mentioned above traded 37 bonds last year for an annual return of 42 percent. The rest of the portfolio (those bonds that haven’t been sold yet) is returning around 10 percent annually.

Imagine how much money you'd have right now if 99.7 percent of every investment you ever made returned an average of 10 percent per year. You'd probably already be retired now... or enjoying your retirement a lot more.

Long-term, proven, dependable income, capital gains, liquidity, short maturities to protect you from the ravages of inflation, and an 80-year history of paying as promised 99.7 percent of the time.

Is it worth the trouble to learn more about bond investing? If you're retired, or ever plan to retire, it may be the best thing you will ever do for yourself. Do the math.

The losses the stock market delivers will be the kiss of death for most people's retirement. There is a safe alternative... and it takes only a little effort to master it.

Bonds, the new boomer investment.