Yesterday we looked at what may now be the single greatest risk to your retirement dreams - a seemingly benign 1% move in the 10-year Treasury yield. (See Part I.)
So now I'm going to show you what to do about it...
Remember, if we're going to keep increasing our wealth at a significant pace, we need to make a big adjustment.
Only a handful of companies can grow your money by 10% or more a year now. I'm going to show you three of them.
But please, before you buy these shares...
Sell your "dead money."
There are three brand-new forms of it.
The first one is obvious, but I'm going to cover it anyway. Any cash you have tied up in this asset will be in "zombie zone" far longer than anyone thinks. And millions of American investors own the other two investments.
Perhaps you own some of these companies, too.
Either way, beware...
Investment No. 1:
After more than three decades in a major bull market, U.S. Treasury bonds have reversed course. The new reality in financial markets is rising interest rates, and a rising interest rate environment means Treasury bond prices are under massive pressure.
More importantly, I expect this situation to continue for some time, especially as the Federal Reserve unwinds its current quantitative easing, or QE, bond-buying program.
Now, it's likely that the biggest move in bond yields, i.e., interest rates, has already taken place, so I expect a steady march higher in yields that will keep a lid on bond prices in the coming years.
That means your money will either be dead or in the zombie zone for a long time.
Another major factor negatively influencing Treasury bonds is the flight of capital by two of the largest bondholders (besides the Fed itself), China and Japan.
In fact, China and Japan combined to sell off a record $40.8 billion of Treasury bonds in June. If the Federal Reserve begins pulling back or "tapering" its Treasury bond purchases, Treasury bond yields will have no place to go but higher, which means Treasury bond values will drop down to dead-money levels.
Investment No. 2:
Preferred stocks have long been a widely held "widows and orphans" investment vehicle because they offer fixed-dividend payments along with price stability similar to owning corporate bonds.
Unfortunately, this sector has been hammered for the same reasons bonds have - the rising interest rate environment.
Of course, not all preferred stocks are created equal, and some are holding their value better than others.
However, if we look at the price performance of the iShares S&P U.S. Preferred Stock Index (NYSE Arca: PFF), which serves as a proxy for the entire preferred stock segment of the market, we see that the share price is down more than 8% from its May high.
That's a much bigger decline than its annual yield of 5.78%. That swift decline also is indicative of the kind of risk your principal is at in this dead-money investment.
Investment No. 3:
Much like Treasury bonds and preferred stocks, utility stocks are another sector that's ambling through the dead-money graveyard. The chief reason why has to do with a combination of the sector's limited growth potential and, of course, the trend toward higher interest rates.
On the growth front, traditional utility stocks such as electric power generation plants and water providers are operating largely at capacity. That means their organic growth is limited.
And, because power and water rates are strictly regulated by state and local governments, the ability to increase revenue through higher prices also is limited.
As for interest rates, the fixed-dividend stream paid by utilities diminishes in value as interest rates rise, and that means a confluence of factors bringing utilities to death's door.
So, now that you know what investments are fit for the Grim Reaper's portfolio, what are the investments that still have plenty of life left?
Part III: Give Yourself a 10% Pay Raise in 10 Minutes
In the final part in our series, I'm going to show you how you can easily get the Holy Grail of investing - 10% annual returns in your portfolio - with three of my favorite picks.
The first two are both winners in the U.S. energy boom, especially in the natural gas sector.
One has a unique and growing niche in the unfolding energy boom going on in North America. Plus it has a plethora of long-term, fixed-rate contracts with major energy and utility companies, so its future is solid and getting brighter.
And it's a major player in global LNG transport - one of the most in-demand industries in the world now. LNG prices are up to five times what they are in North America, and this company is key in linking that supply with the demand - at great profit.
My second pick in this sector owns one of the largest oil and natural gas pipelines in the United States. It makes money from the volume shipped from fields to ports and refineries and will be a huge winner as domestic production grows to meet global demand.
The third pick is a traditional REIT that actually invests directly in prime real estate properties such as office buildings, and the rents from these properties are what Vornado uses to generate income for unitholders.
This is perhaps the only REIT you'll want to own now.
Read part I and part III of this series.