The Investment U e-Letter: Issue # 639
Monday, February 12, 2007

Investing In Bonds Only: Why This Investment Strategy Doesn’t Work and What Does
by Alexander Green, Chairman Investment U -Investment Director, The Oxford Club

During the bear market of March 2000 to October 2002, stocks took their biggest plunge since the Great Depression. The Nasdaq lost nearly three-quarters of its value.

But bonds saved the day for many investors, turning in double-digit returns each year and smoothing out holders’ investment performance.

Don’t get too comfortable with them, however. Unless you’re independently wealthy, only investing in bonds won’t create an easy retirement. Here’s why.

Why Investing In Bonds Isn’t Paying Off

Yields in the U.S. are hovering near 40-year lows. Ten- and 30-year U.S. government bonds currently yield less than 5%. The yield on the 10-year Treasury note has averaged 4.4% over the past five years, well below its 8%-plus average over the prior 25 years.

To compound the problem, Americans are living longer than ever. The average life expectancy in the U.S., at 78 years, is way up from 57 in a little more than four generations, according to the National Center for Health Statistics.

And this actually understates the problem. Many baby boomers will live up to three full decades in retirement. That means your investments will have to pull double duty.

After all, Social Security as it stands now is a demographic time bomb. And, even in the most optimistic case, you can only count on it to cover a small portion of your retirement expenses.

Private pension plans, on the other hand, are under-funded by approximately $465 billion. Many corporations have raided their plans. Or have simply waved the white flag and filed for bankruptcy.

Meanwhile, inflation - the thief that robs us all, but especially retirees - is driving up your cost of living, eroding your purchasing power and increasing the cost of your housing, utilities, insurance, health care and other annual expenses.

That’s why you need to prepare your retirement portfolio now to do some heavy lifting in the future. After all, you can hardly call them your “golden years” if you spend retirement watching every penny.

The solution, of course, is to boost your returns immediately. That means diversifying well beyond the bond market.

Not Only Bonds, But A Profitable Blend for the Long Run

According to J.P. Morgan Chase & Co., the largest 100 corporate pension plans projected as of 2005 that they needed an average annual return of 8.47% to keep up with their liabilities.

That’s nearly double what Treasuries are paying. And that’s why The Oxford Club set up an asset allocation portfolio to show members how to divide their capital to maximize returns while strictly limiting risk.

This model, of course, is designed to help you generate a higher total return. How about investors more interested in high current income?

For those folks, we set up what we call our Perpetual Money Portfolio, which generates 8 checks a month or 96 checks a year. Yes, it contains investment-grade bonds. But it also includes high-yield corporates, preferred shares, convertible securities, high-dividend paying stocks, floating-rate loans, international bonds, broad currency diversification and interests in income-producing commercial properties too.

Doing this allows us to both beat inflation and receive high monthly dividend checks - something that is simply not going to happen with a portfolio of investment-grade bonds alone.

Good Investing,

Alex

Today’s Investment U Crib Sheet

• The Oxford Asset Allocation Model is based on an investment formula that won Dr. Harold Markowitz the Nobel Prize in finance in 1990. His paper promising “portfolio optimization through means variance analysis” demonstrates how you can maximize your profits and minimize your risk by properly asset allocating your portfolio - spreading your investments among different asset classes, not just different securities or market sectors. For more on this topic, take a look at our free report, How To Build Wealth.

Shock Stocks

At noon today, 14 stocks on the U.S. exchanges were up more than 15%. Hooker Furniture (Nasdaq: HOFT) sat atop the leaders’ board, up 21% on record sales and higher profits. The company’s stock has climbed 37% since November.

Here are more of the market’s fastest-moving growth stocks.

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• Dividend Growth Stock Investing: How To Get Solid Returns with Little Risk Plus, 5 Dividend-Paying Investments to Consider
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• Premium Content - Turn Your Portfolio Into A Perpetual Money Machine

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