Building Wealth

Crash Protection That Pays You 10%-20% to Wait

It was 8 a.m. when Mom called.

For as long as I could remember, my mother never got up before 9 a.m. And she certainly never called me in the morning.

I thought something was terribly wrong...

Davey, I'm not sure... I'm really worried and I haven't been able to sleep much lately. If the market keeps going up and up, won't I miss out on making a lot of money?

I was relieved. No burglars... and most important, no health issues or family emergencies. She had what I call "bull market anxiety." That feeling of being left behind that drives people crazy.

The market was just coming out of the financial crisis in May 2009... she was holding a lot of cash... and she was worried about when to get back in. My mom didn't want to "miss" the market rally, but she also was afraid to load up on stocks.

That month, I recommended my Retirement Millionaire subscribers (and my mom) purchase an asset that gives safety and income... plus some extra "juice" if stocks kept rising on the back of the Fed's newly created credit.

The recommendation I made – a convertible bond fund called the AGIC Income Fund (NIE) – has since surged 129% higher, including dividends. And the fund has consistently paid a dividend of roughly 7%-10% a year.

Most individual investors fail to appreciate the purpose of bonds in a portfolio.

Bonds seem staid... even boring. You lend some cash to a company or government, and over the next few years, you book the interest payments (and principal, if you hold to maturity).

I want you to think about bonds a different way...

Bondholders, unlike stock investors, have a legal right to be paid by the company. If a company's balance sheet collapses, its share price collapses with it (and any dividend it pays will end).

Shareholders have no guarantees... but bondholders are safe.

Those interest payments are legal obligations. So if a company gets in trouble, bondholders stand at the head of the line when it comes to paying bills and creditors. Even in the event of a bankruptcy liquidation, the proceeds go to the secured creditors and bondholders. Shareholders get squat.

Not only that, but the capital gain potential of bonds is widely underrated. If you can purchase corporate bonds at a discount – when they trade for less than face value – and hold to maturity, you receive the full face value when the bond principal is paid off. That can be an incredible overlooked built-in capital gain... regardless of what the market or an individual company's stock has done.

As long as the company doesn't go bankrupt, bondholders get paid.

Today, the market is getting expensive...

According to MarketWatch, the stock market is now more overvalued than nearly every bull market peak over the past 100 years. That doesn't mean it will drop tomorrow. Markets can remain overvalued for months... even years.

I always recommend keeping some money in the stock market by owning great businesses.

But now is the time to start thinking about what might happen in a crash... and how you can profit.

My publisher, Porter Stansberry, made waves last year when he launched his bond service, Stansberry's Credit Opportunities.

His goal is to purchase "distressed debt" during times of crisis. He's calling it "the greatest legal transfer of wealth in history." Over the next 18-36 months, millions of investors in leveraged businesses could be wiped out.

And purchased at the right price, corporate debt can make a fortune for investors.

Remember: All that has to happen for you to be right... to get paid 10%-20% per year in payments... and to make up to 100% or more in price appreciation... is for the company to not go bankrupt.

These conditions are not always present. They tend to come and go in a cycle...

Porter has put together a presentation that details this "debt cycle" that can set you up for tremendous gains. These conditions mean you can:

  • Often double your initial investment in 12-48 months.
  • Collect income (paid to you twice per year) of 10%-20% or more per year.

That's all with a safe, legally binding contract that has less risk than stocks, and no matter what happens in the stock market.

Porter even claims: "When you start doing a few of these deals, you might never want to own ordinary stocks again."

Click here to read more. (This link does not go to a long video.)

What We're Reading...

  • Marks has raised $22 billion in capital so he's ready for a crisis... and today's market turmoil is "making Marks excited about buying again." The last two times Howard Marks raised huge funds... it was on the brink of a major opportunity in distressed debt.