Three "Dead Money" Investments, Plus One "Living Large" (Part II)

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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…

Dead-Money
Investment No. 1:

Treasury Bonds

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.

Dead-Money
Investment No. 2:

Preferred Stocks

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.

Dead-Money
Investment No. 3:

Join the conversation. Click here to jump to comments…

  1. Ken Smith | September 11, 2013

    Robert Hsu used to claim that he was an expert on China and picked one loser after another (I was a subscriber to his service). Now he is an income expert! What's next? Baseball scout? Money Morning can do better than this.

  2. Dick | September 11, 2013

    Dead investment, why? You go into these investments for cash flow. As long as cash flow comes in, the investment is alive. If you invest for capital gain, choose something else. FB and YELP are hot.

  3. yngso | September 12, 2013

    I suppose it has a lot to do with age: If one is young- and smart – and time is on one´s side, mostly "safe" stuff is a good idea.

  4. richard kondrat | September 13, 2013

    For two days you have been telling us about Part III of this series. So when is it coming out?

  5. Brad M | September 16, 2013

    It all depends on the investor, and the individual company. These instruments may not necessarily be dead, though Treasury bonds might become a nightmare ( comparitively to other investments). Are you looking long or short term? For capital gains or dividend cashflow ? Article perhaps a bit too generalized statement.

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