The price of bonds will drop. There’s not even the least chance of it not happening.
Pension funds, bond funds and indeed, governments and central banks, which hold bonds, will all see their bond portfolios come down to earth like a giant meteor.
Don’t allow this to happen to you. The low default rate has nothing to do with this. The coupon will still be paid, but the face value of your bond, when you’ll want to sell it, will be worth half of what you paid for it, if inflation keeps rising and interest rates head higher.
Instead, place your retirement savings in MLPs and REITs.
Real Estate Investment Trusts allow us to own businesses that purchase and manage real estate. Instead of becoming a traditional landlord, with all the hassles involved with it, REITs are a one-stop-shop to owning a portion of a well-managed and diversified portfolio. An established REIT with a fortress-like balance sheet is able to use debt financing at far better interest rates compared to us. REITs are also required by law to pay out 90% or more of their net income to unit holders.
What I really love about them is that they own the type of real estate that an individual can’t invest in, like hospitals, malls and government buildings, for example.
REITs have averaged 11.9% annualized returns since we went off the gold standard, compared with 10.6% total returns for the S&P 500 over the same time period.
But, what really should be your main focus is that they outperform in rising rate environments.
What’s very interesting about today’s high-yield market is that MLP prices have dropped massively – yields are juicy and with rising oil prices, there are buying opportunities, which are ultra-safe compared with bonds, for instance.
Buckeye Partners (NYSE: BPL) is paying an 11.13% distribution – an MLP.
Omega Healthcare (NYSE: OHI) is a REIT, which pays out a 9.7% distribution.
It’s the largest publicly traded REIT, within the U.S., in the nursing facilities niche.
Both of these companies are undervalued today, and I’m personally putting money into them.
There’s no reason in the world that can prevent you from generating high-yield, no matter what the economy is doing.
As it stands, many changes are happening all around us, but the inverse relationship between the outperformance of REITs and MLPs in times of rising inflation and hiked interest rates, compared with U.S. equities, doesn’t change.
Bonds are the deadliest and most lethal assets to have in your portfolio today – get rid of them. Study the benefits of REITs and MLPs instead.
They won’t make you wealthy, but they will make you wealthier.