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How To Make Money on Your Investments 99.5% of the Time

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How To Make Money on Your Investments 99.5% of the Time

Wednesday, 15 October 2008

By Steve McDonald
"Why does every stock I buy go down?" Every investor feels this way at some point. The market seems to have a way of knowing exactly when to dump. Right after you put your money in it.
Nine out of ten investors repeat the same mistake and expect a different outcome. They wait for the stock market to go up enough to prove to them that it is a good investment. Then they invest. The outcome is always the same. They buy high and then sell low.

One investor recently told me they had figured out how to win consistently at options. If you want to buy a call, just before you enter the trade, buy a put. The reverse applies. She swears it works every time.

This is bordering on Voodoo.

The bottom line; most people do not have the discipline, technical expertise or a historical perspective of the stock market to successfully invest in individual equities. After more years than I care to admit of working with investors, I know for a certainty most should stay out of stocks.

What investors really want is consistency and predictability. They want to win on a regular basis. Stocks do not give you any of these things.

Getting paid regularly is possible only in bonds, and there are more choices than just treasuries and savings bonds. Right now some corporate bonds are really good deals.

The first thing you learn as a new broker is that the really wealthy clients don't risk their money in the stock market. Every large account, $500,000 or more, I have ever managed was in bonds, either tax-free or corporate.

The problem is most people know less about bonds than they do about stocks. There is less information available about bonds, they aren't discussed or written about ad infinitum, as are stocks, and they really are the last bastions of the old boys club on the street.

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It has been, until now, the exclusive domain of those who have real money.

It's time for the little guy to get out of the stock market lottery. Corporate bonds are usually the best way to make some real money, with a much better rate of return. There are however a few basics you should be aware of.

The corporate bonds your broker will show you are from his company's inventory. There's nothing wrong with that except that they will usually be at premiums and rarely below AAA, which, in both cases, means a lower return.

Premium means more than $1000, par, per bond. They are usually AAA because they're the easiest to sell to the uninitiated.

But, there are much better opportunities in what are called discounted, investment grade bonds. Discounted, less than par, or $1000, means you get a capital gain when it matures. Investment grade means above BBB rating, not junk. This describes the best bonds out there.

The beauty of this method of investing is you know when you get paid, exactly how much you will get and you have a 99.5% chance of making money. That's because the default rate of investment grade bonds is about .5 out of 100.

But, how much can you make you ask? I'm not interested in 4% or 5% per year.

Right now, the bond market has more and better opportunities than I have ever seen. I have bonds out right now that will have a total return of more than 30%. Buy a bond at a discount and collect the interest. It's very nice.

Also, you sleep better at night and can have a life away from your computer.

As with all investments, stay diversified over many industries, also over many maturities, and never be a rate hog. That means don't just look at the coupon or interest rate. Bears and Bulls make money, pigs don't.
Give bonds a look. You will not be sorry.

[Ed. Note: Want to make stock market returns… without taking on stock market risk? Want to derive capital gains and income from your investments? Want to keep your wealth safe and secure in these turbulent times? Steve McDonald can show you how, with a carefully selected portfolio of investment grade corporate bonds. Learn more about the Bond Trader here.]

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