It's amazing, but people just keep flocking to 10-year Treasuries for "safety!"
In fact, as the recent stock market sell-off really got going, the yield on these U.S. government bonds hit 1.6714 percent … the lowest we've seen since the 1940s!
I'm truly amazed to see such rock-bottom interest rate numbers out there.
Now, from a qualified borrower's perspective this is terrific. Heck, 30-year fixed-rate mortgages are now readily available at 4 percent, even without any points or exorbitant fees. And if you search harder, you can find some lenders who are charging even less now.
But for anyone who is trying to save or invest, this interest rate action stinks!
Hey, I get that people are scared and I realize the world economy is a mess.
Still, I think piling into U.S. Treasuries is just about the worst possible thing an investor can do right now.
Because the way I see it, there are only two endgames here:
- The whole ship goes down.
- We eventually return to some semblance of normalcy — even if it's a new "normal" of lower global economic growth.
Obviously, under scenario A., U.S. Treasuries are going to fare no better than any other paper asset.
Meanwhile, under scenario B. — which pretty much covers all other possibilities — you're going to be stuck earning less than 2 percent a year for the next decade.
Sure, you'll feel safe for right now.
However, you will almost definitely NOT be keeping pace with inflation.
And should you need to redeem those bonds before maturity, you stand a very big chance of losing big money.
Meanwhile, You Could Be Capitalizing on This
Market Weakness and Getting Much Better Yields!
Even if we put aside that fact that many major American (and foreign) corporations are in far better fiscal shape than the U.S. or Europe right now, dividend stocks look like the best relative value at the moment.
Ask yourself: Which is likely to produce the better gains going forward — the market that is soaring to all-new highs or the one that is getting slammed?
History argues for the latter. In fact, practically all reasonable analysis argues for the latter.
And yet most people — despite pledging their allegiance to the "buy low, sell high" mantra all the time — simply cannot bring themselves to walk the talk.
Remember, we are not talking about individual companies here.
In that case, one could successfully argue that a well-run firm could keep climbing indefinitely while another mismanaged one could go out of business.
Instead, we're talking about two of the biggest assets classes in the world — U.S. government debt vs. American blue chip companies.
So if you're an income investor, it seems pretty simple …
You can buy those Treasuries — at record highs — and get less than 2 percent a year, with the risk of capital losses unless you hold for at least a decade.
OR, you can buy rock-solid companies — at historically-reasonable prices — and get yields two or three times as high … PLUS a strong likelihood that your yields will continue going HIGHER from future dividend increases.
By the way, make no mistake about that last part: America's best companies are continuing to raise their dividends throughout all this madness.
Just in the LAST MONTH, three of my current recommendations boosted their payments by 7.9 percent … 20.3 percent … and a whopping 28 percent, respectively!
If that doesn't give you an indication of how well their businesses are doing, I don't know what would.
Meanwhile, yes, the risk of capital losses is still there with stocks. But like Treasuries, that's only true if you have to sell.
More importantly, I'm willing to bet that U.S. stock will outperform U.S. Treasuries in the decade ahead.
And I grow ever more confident in making that wager as the rest of the world's investors move to the other side of the table!
P.S. A lot of investors have been asking me just how big of a deal rising dividend payments are in the grand scheme of things. Well, as I explain in my latest video presentation, they can mean the difference between earning a couple percent a year and getting annual yields of 12 percent or more!
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