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Do This and You’ll Retire Broke

The mainstream news gave it scant attention, but the bond market suffered a substantial drop last Wednesday. The yield on the 10-year Treasury bond spiked to the highest levels in seven years.

MWW chart1

Federal Reserve Chairman Jerome Powell warned that interest rates are “a long way from neutral,” which implies more interest rate hikes to come.

The result is that yields on the 10-year U.S. Treasury bond are some of the highest in the world.

What does that mean for income investors?

Long-term bonds are one of the worst places to invest your money.

Instead, the most productive place to invest right now is in Corporate America, which is repurchasing its own stocks at a record pace.

But don’t take my word for it; here is what Warren Buffett says about stock buybacks: “From the standpoint of existing shareholders, repurchases are always a plus.”

If buybacks are always a plus, then stock investors should expect the stock market to keep going higher. I say that because of the surge in share buybacks this year.

Companies in the S&P 500 bought back a record $189.1 billion shares in the second quarter, a 60% year-over-year increase, according to the S&P and Dow Jones indexes.

Moreover, that’s above the $178 billion of buybacks in the first quarter of this year.

Through the first six months, corporate buybacks totaled $379.7 billion, a 50% increase from the same period in 2017.

MWW table

Better yet, the total value of stock buybacks is expected to exceed $1 trillion this year, which would trounce all prior records.

With $2.6 trillion of American profits still sitting overseas, the buyback boom isn’t going to end anytime soon. I expect corporations to further escalate their share buybacks this year and next.

Keep in mind too that companies don’t buy back their stock unless they consider it to be a good value. History has shown companies engaged in stock buybacks are good investments.

According to a study from Harvard Business Review, companies that buy back their own stock see their stock increase by 12.15% versus their nonbuyback peers over the next four years.

In short, stock buybacks create value.

Plus, those massive buybacks not only represent a huge source of stock market demand but a safety net that will limit the size of corrections.

Bottom line: In spite of higher market volatility, stay invested, but invest in high-quality dividend-paying stocks!

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert, Mike Burnick’s Wealth Watch

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Mike Burnick

With over 25-years of professional investment experience, Mike Burnick was a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. Mike joined Weiss Research in 2002 as an analyst and writer, and in 2008 was named Director of Research and Client Communications at Weiss Capital Management, where he assisted...

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