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.