Obama Can Retire Rich... but Not You...
Obama's 2014 budget plan proposes putting a cap on retirement accounts...
What's most shocking about this plan is Obama's retirement already exceeds the capped amount.
Before you get angry... here's what Obama doesn't want you to know...
With one simple retirement blueprint, you could take advantage of this window of opportunity to retire wealthy...
Long before his plan takes effect.
Click here for all the details...
| | A 12.3% Yield... and a $40 Bonus | by Steve McDonald, Senior Analyst
Friday, June 14, 2013 | As the stock market hangs around all-time highs, a lot of folks are questioning the strength of the bond market.
But don't be fooled by the folks who paint the picture with a broad brush. There are many easy ways to make money with bonds.
First, you need to understand how they work.
With bond prices through the ceiling and yields through the floor, it is a good time to look at how to earn some hefty returns from bonds even in this "frothy" market.
Let's go over the basics...
| Sponsored Amidst all the hype, this may be hard to believe... Legendary financial expert Alexander Green recently discovered a unique investing strategy that sails through financial bubbles, busts and bad banking. It helps him pinpoint plays that jump 290%... 337.04%... and 488.89%. It generates double-, triple-, even quadruple-digit gains through election cycles, through political crises, and even through upheaval at the Fed. It literally ignores the macroeconomic forces that supposedly shape our financial futures. What exactly is Alex's strategy? Click here to find out. | When you buy a bond, you are paid a fixed interest rate (called the coupon rate) from the time you take possession of the bond until you sell or the bond is tendered, called or reaches maturity.
The coupon rate is the simplest idea to understand.
If a bond pays a 7% coupon, the owner gets $70 a year in interest. If it's a 5% coupon he gets $50 a year. I'm sure you get the routine. It's easy.
The cash comes in two equal payments every six months until maturity. A coupon is cast in stone and does not change... ever. No matter what happens to the market price of the bond, the coupon rate does not budge.
If you buy a bond for less than par (the $1,000 standard face value of a bond), you still get the coupon interest rate. But the overall rate of return on the bond rises.
A 7% coupon pays $70 a year, but if we purchased it a discount, say $900 per bond, it would have a current yield 7.77%. We get that figure simply by dividing the face value of $900 by the 7% coupon rate. It's called the current rate.
And, of course, you get paid the bond's par value ($1,000) at maturity. Not bad!
Sometimes the company that issues a bond has the option to buy back the debt on a preset date. These dates are usually set several years before the bond's maturity. When a company takes advantage of the option, we say the bond is "called."
If a bond is called, a company must pay a preset amount, usually a premium, to get the bond back from investors.
For bond owners, it is almost always a good thing.
Similarly, a company may also make a tender offer to buy back a bond at any time. These are almost always a very good deal for the bondholder.
This year, in the Oxford Bond Advantage portfolio, we've had 13 bonds either sold, tendered or called. The annual returns we have received for these bonds have been through the roof... anywhere from 12% to 25%.
Two recent tender offers for bonds in our portfolio have been no different.
Last September, I recommended two bonds from a popular drilling company. Both bonds were trading at discounts. One of the bonds came with a coupon of 8.25%. The other sported a hefty 9.125% rate.
Since we paid $964 for the 8.25% bond, and $910 for the 9.125% bond, we locked in current rates of 8.55% and 10.02%, respectively.
Very nice... but it gets better.
Paybacks...
While doing my research, I noticed both bonds recently had tender offers, and one was a complete freebie.
First, let me share the details of the conventional tender offer.
The driller offered the owners of the 8.25% bond $1,027.90 if they would sell the bonds back to the company. The offer also included interest payments until the deal closed in early June.
When we do the math, this is where tenders look very good. Remember, we paid about $964 per bond last September.
We will have received eight months of interest - or about $55. And, we also get the difference between our cost of $964 and the tender price of $1027.90.
That's a gain of $63.90.
When we bought the bond last September we expected to earn a minimum annual return of 9.63%.
By accepting the tender offer our real return jumped to 12.3%... from an ultra-safe bond in what is supposed to be a "return free" market.
Buying Your Vote
But here's a twist that was new even to me. The 9.125% bond I mentioned above had a very unusual tender offer.
The company offered the owners of that bond $40 per bond to vote yes to allow the company to restructure its debt. In other words, bond owners get to keep their bond and continue to collect the 10.02% yield each year... and they pocket $40 per bond.
All of these numbers sound great, but, if you've been around the block a few times, you should be asking what kind of risk these bonds pose. After all, this is supposed to be a zero-interest-rate market. And we don't get anything for free.
Right now the success ratio for high-yield bonds, rated below BBB, which is what these bonds were rated, is around 98%.
A 98% success ratio means that, in the current market, 98% of all high-yield bonds pay exactly as promised. They pay their interest on time and return $1,000 per bond at maturity.
That means, on average, there are only two defaults for every 100 high-yield corporate bonds on the market. Overall, corporate balance sheets have never been healthier.
That's as safe as you can get while still earning enough to make investing in bonds worthwhile.
On the surface, bonds look simple and bland. But dig deeper to understand the mechanics of the debt market, and it's clear bonds have something to offer just about every kind of investor.
Take a look below the surface of high-yield bonds. There's a lot more under the hood than you think. Find the right bond... and you may even get paid to vote.
Good investing,
Steve
Editor's Note: There's a great reason you don't know much about the bond market - there's no incentive for brokers to tell you about it. Brokers are typically incentivized to get their clients to churn through stock transactions and generate fees - certainly not to build wealth for their clients.
And Steve, a former stock broker himself, is sharing a way for anyone to set up as much as $1,187 in monthly income. But you won't hear about this from your broker. For more details, click here. |
   
Market Metrics A Billion-Dollar Resignation It has been a tough week for Lululemon Athletica (Nasdaq: LULU) investors. Shares plunged on Tuesday on the news the company's CEO has resigned. She quit... and took a big chunk of the stock price with her. As shares of the company dropped from an all-time high of $82.50 to below $64, close to $2 billion in equity evaporated. It's one of the scariest charts we've seen in a while, but the story is quite interesting. We've posted an in-depth analysis of that stock on our site. You can read it by clicking here. - Andrew Snyder 
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Finally... A Solution to a Real Problem
| Sponsored The New Big Shot? For the first time, a very profitable global company is about to make a big move. It's decided to go after the North American markets by targeting " a number of countries there, including, primarily, the United States." By this time next year, there's a good chance everyone in America will be talking about this company. But for now, you've likely never heard of it. Here's why. | |
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