Retirement Investment Income
Steady and predictable retirement investment income is the hallmark of a secure retirement. Retirement is not the time to take financial risks for most people. Retirement is the time to enjoy the fruits of your lifelong labor.
Retirement Investment Income - Bond Investing
One way to get steady and predictable retirement income is to invest in bonds - corporate bonds (as 007 might say). A bond is a debt made by an entity such as a corporation. That debt must be paid back with interest, usually semi-annually. It is an obligation.
Stock dividends on the other hand, are not guaranteed. Stock dividends do not have to be paid by a corporation. Dividends can be increased, decreased, or they may stop all together. Many corporations do not pay you any dividends on their stock.
In essence, you are acting as a banker when you buy a bond. Like a bank, you are loaning money that must be paid back with interest. The loan amount or "face amount", as it is called, is $1,000 per bond.
The interest rate on that bond is called a coupon. It may be 8.125% or some other value. The interest is usually paid in semi-annual payments over the length of the loan term.
At maturity, the due date for the loan, the face amount of $1,000 is paid back to you in full.
Now it gets interesting. The coupon rate of a bond never changes. It will remain some fixed amount for the length of the loan. However, as the credit worthiness changes, a bond may be discounted.
If you buy a discounted bond, your risk has been reduced. The price has already fallen. So, a $1,000 bond may now be selling for $700. When you hold that bond to maturity, you will receive $1,000 plus the biannually scheduled interest.
Your yield will be higher than the stated coupon rate. In this example, a coupon rate of 8.125% would pay $81.25 in annual interest. By paying only $700 for the bond, your yield is 8.125%/$700 or 11.61%.
At maturity you will receive $1,000 for your $700 investment. Your gain would be 42.86% on your principal. Not bad!
The key to investing in bonds is to find safe bonds. That is, a company who has enough assets that, if they were to default, their assets could be sold to pay you, the bond holder.
Remember when a company defaults, the stock becomes worthless and you could lose 100% of your investment. As a bond holder, you must be paid if there are assets. You have first rights to the company's income.
The best way I know of for the average investor to safely invest in bonds for retirement investment income, is to subscribe to a trustworthy newsletter on the subject. The best newsletter I know of is True Income. This newsletter subscription rate is $2,400 annually.
Mike Williams, CFA, writes the True Income newsletter. He will show you which bonds to buy and how to do it. True Income is published by Stansberry & Associates Investment Research (www.stansberryresearch.com).
If you are looking for steady and predictable retirement investment income, invest wisely in corporate bonds.
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