"The old way of investing is dying..."
That's what I said to readers more than a year ago. And it was a radical call, bucking decades of mainstream investing wisdom.
You've probably heard about the "60/40" portfolio allocation for your entire adult life... Put 60% of your investment portfolio in stocks and the other 40% in bonds. This is what professors teach in Finance 101.
In normal market conditions, that traditional allocation works great. The stocks provide growth but greater risk, and they're balanced against the safety of modest, predictable bond yields.
But sometimes, this rigid model is a disaster for your retirement... You could spend a lifetime squirreling away your savings in a 60/40 allocation, only to come up short if the markets turn against you just before you retire.
Even worse than following such a strict guideline is the number of folks who don't follow any asset allocation... That's especially true for bond investing. I've met too many folks who are invested only in stocks because bonds are "boring."
But this past Wednesday, my friend Joel Litman – founder of our corporate affiliate Altimetry – warned that stocks are headed for disaster. Right now, every warning sign he sees is flashing red. But instead of panicking, you just need to prepare. And that's by getting into that boring asset – bonds.
Joel has an enviable track record in times of crisis. In the aftermath of the Great Recession, he publicly exposed a list of companies he predicted were doomed for massive losses.
Sure enough, 50 of the 57 companies he named fell in price.
According to Joel, the current looming disaster in stocks will lead to fire-sale opportunities in bonds.
To find out how to position your wealth, click here.
Now, let's dig into some questions... As always, keep sending your comments, questions, and topic suggestions to [email protected]. My team and I really do read every e-mail.
Q: Hi Doc, in a recent mail response regarding sugars, you stated "never drink fruit juice." I recently read of a study (I can't remember where) that found pomegranate juice may help reduce plaque in the arteries. However, I checked my pomegranate juice and found it has 38 grams/8 ounces of sugar! Have you heard of this study – do you have an opinion? Do you know if there's any way to get the benefit without consuming all that sugar? – H.M.
A: There was a study in 2004 that found atherosclerotic patients with carotid artery stenosis who drank pomegranate juice saw a 30% reduction in the thickness of their carotid artery wall. (Plaque is a main cause of thickness in the artery wall.) Researchers pointed out that the benefit likely came from the antioxidants in the fruit juice.
But a 2009 study found people who drank 240 milliliters of pomegranate juice per day saw no significant difference for up to 18 months. So overall, the science doesn't really support drinking that much fruit juice every day... even before factoring in the harm from its sugar.
Pomegranate seeds do contain polyphenols (a type of antioxidant). Polyphenols battle inflammation, which is a major cause of illnesses like Type 2 diabetes, Alzheimer's disease, and heart disease. Regular consumption of polyphenols is also linked to digestive and brain health.
So if you want the benefits, you can eat whole pomegranate seeds... not processed, sugar-infused pomegranate juice. Other foods that contain polyphenols include blueberries, dark chocolate, and red wine.
Q: My wife and I purchased I-bonds in April 2022 when the interest rate was attractive. We intend to cash them in, most likely sometime this year, but aren't sure when the interest rate on the bonds we currently hold will drop to a point that it's worth forfeiting the prior three months of interest. Can you clarify this for us? Thank you! – P.W.
A: I originally told readers to buy I-bonds back in March 2022, when these bonds were paying a 7.12% annual rate. At the time, I said...
You're going to earn a healthy, inflation-adjusted return you really can't get anywhere else. If you've got some cash on hand, you can protect your purchasing power and earn a real return in the safest of securities.
Interest rates are announced twice a year – on May 1 and November 1. When the rate changes on your bond depends on when it was issued. But the interest you earn changes over time. Right now, new I-bonds are paying 4.3%.
I can't give individual investment advice. But I can say that when you sell depends on when and why you bought, how much interest you would lose, and whether or not you could earn more in a savings account.
I-bonds pay interest for 30 years. You can cash out after the first year. But if you decide to cash out your bond within the first five years, you'll give up three months of interest. So when you're deciding if it's time to sell, check how much interest you'd lose. Also, check the current rate your bond is paying. You can find all of that on your TreasuryDirect.gov account.
I like the inflation protection and tax benefits I-bonds offer. In general, there is no state or local income tax on interest earned, although you will have to pay federal income tax. But with high-yield savings accounts paying 4.5% interest, it might be worthwhile for some folks to park money there instead.
Again, you have to determine what's best in your situation based on the factors I've mentioned.
What We're Reading...
- Did you miss it? Why an Apple bond is down 40%.
- Something different: Toothpaste is the best vacation souvenir.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
September 29, 2023