Your Best Plan For Surviving 2018’s Rate Hikes
Of all the recommendations I’ve made, which one do you think I’m the most proud of?
Spoiler alert: It’s not Marathon Oil Corp. (NYSE: MRO), even though that stock has soared over 35% since first mentioning in Wealth Watch.
I think the best advice that I’ve given — especially since this is an income-focused service — is my clear, unambiguous advice to steer clear of long-maturity bonds.
Interest-bearing bonds have long been the traditional solution for income-seeking investors and exactly the recommendation you would have gotten from the so-called Wall Street “experts.”
But not from me.
I noticed late last year that inflation was gathering a head of steam and that the next major move for interest rates was going to be higher, not lower, as most financial pundits believed.
Moreover, the Federal Reserve raised interest rates three times in 2017 and had clearly stated their intention to raise rates even more (which it did again in late March).
In fact, the Federal Reserve expects to raise interest rates at least two more times before the end of this year. And perhaps more if inflation data continue to come in on the hot.
The 10-year Treasury bond was yielding less than 2.5% in January and as recently as March but is now within a whisker of 3% and the highest yield since 2014.
The increase is even more dramatic if you remember when the 10-year hit an all-time low yield of 1.37% in July 2016. Anybody unlucky enough to buy bonds back then would be sitting on painful double-digit losses today.
The only somewhat safe haven for bond investors has been short-duration international bonds, such as Vanguard Total International Bond ETF (BNDX).
BNDX is currency hedged so it has been protected against the falling dollar, too.
BNDX won’t deliver double-digit gains, but it has been a productive parking place for your cash amidst a very dangerous bond market.
Not only are we out of long-term bonds, we are also overweighted in commodity stocks, which are benefiting from higher inflation and higher interest rates.
The price of oil, for example, is now trading at $71 a barrel this morning. And it’s no surprise that both energy stocks and ETFs are up sharply in the last month.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch