The market is moving into a bear market, and the economy is moving into a recession. There is a lot of doom and gloom floating around, but there is a silver lining.
There has never been a better time to invest in the last 20 years. Stocks and bonds have been beaten down so severely that they offer long-term investors high yields and capital appreciation.
Who are long-term investors? This market is a gold mine if you have a time horizon of over ten years. We will have to weather the recession over the next 5-7 years, but eventually, something will bring us out of the downturn.
Pay Down Debt or Start Investing 2
If you don’t know where you should put your money at your age, I’ll refer you to my Dividend Investing at Any Age series (20s, 30s, 40s, 50s, 60s, 70s).
More than dividend stocks. However, the current market offers more than just dividend-paying stocks; you have great values on bonds.
That’s right; bonds are back and better than ever. What is the relationship between stocks and bonds?
The main difference is the safety of principle. When you have a blue-chip dividend-paying stock like Public Storage (PSA) paying 4% versus a 2-Year Treasury Note paying 4%, which do you pick?
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The idea is that the treasury note offers no risk. There is also a chance for the treasury to appreciate if yields on bonds move to 2%. When yields move to 2%, your 4% bond looks sexy to other bond investors.
I covered this inverse relationship more in the article “Preferred Shares vs. Treasury Bonds.” Once you understand the risk and safety of principle, you can better position yourself as an investor.
Where to put your money? Now, with both blue-chip dividend stocks and Treasury Bonds offering 4% returns, where do you park your money?
Treasury in Treasuries
Let’s do a quick review of dividend growth and bond growth investing; we want to put their benefits in focus.
Dividend Growth Investing. We become DGI investors to build a nest egg for ourselves and future generations. Even a small DGI portfolio can turn into millions over 50-70 years.
Investing in blue-chip dividend stocks is a proven way to become rich and provide for your family for hundreds of years.
Imagine buying $100 of McDonald’s stock in 1965. It would have bought you 4.4 shares. Today it would be worth over $600,000 and pay you $15,000 in dividends. Read this Motley Fool article on this fantastic stock.
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In short, we invest in dividend stocks for capital appreciation and dividends. It is a win-win scenario, but it requires time. However, there is some risk to principle.
Bond Growth Investing. Bonds are different because there is a good time and a bad time to buy bonds. BGI involves focusing on getting good yields and protecting your principle.
You can get rich buying bonds because they can also grow in value. However, for us standard Mainstreet investors, we should gear ourselves towards buy-and-hold bond investing.
Bond investing allows us to take more calculated steps without risking principle. Once we have a nice stream of cash flow from our bonds, we can reinvest into high-yield products.
USDC vs. Treasuries vs. Savings Bonds
For example, let’s say we received $500/month from 30-Year Treasuries. We can put that money to work by investing that into my favorite closed-end fund, PIMCO Dynamic Fund (PDI). This CEF yields 12% currently.
How to allocate your money. Since DGI and BGI are both great options today, how do you allocate your resources?
It depends on how much safety you have moving into retirement. As cool as it sounds to have a massive $1 million DGI portfolio at age 50, it could be risky.
Would that be bad if you had $500,000 in DGI (paying you $30,000/year) and $500,000 in BGI (paying you $15,000/year)?
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The problem with the stock market is that it sells off simultaneously. When your portfolio goes down, it all goes down together.
Having bonds, especially “I” Bonds, gives you a safe place to pull money from in times of need. So you have less upside but far less downside.
How does your overall retirement plan look? I have a military pension coming my way so that I can invest heavily in dividend stocks. Anything I receive from dividends and bonds is extra cash flow.
You must take your principle much more seriously if you don’t have a pension. BGI will be a great way to protect your paper assets through a downturn.
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Plus, your bonds won’t show a negative value, even if the market turns against you. When you log into TreasuryDirect, you won’t see your 4% bonds show a negative sign if bond yields move to 6%.
This is important because you can leverage against these assets if necessary. If you have $500,000 in Treasury Bonds, you may be able to leverage (take a loan) $300,000 against it.
Your $500,000 DGI portfolio may depress to $300,000 in the market downturn. Which means you may be able to leverage $100,000 against it.
Grace & Passive Income
Again, understand why DGI and BGI are different but valuable strategies. Having both opens doors to other avenues of investing, growing, and protecting wealth.
Conclusion. As I wrote in “My Recession Investing Plan,” I focus more on DGI than BGI. My military pension allows me to take a little more risk for a chance at a higher return.
If I didn’t have a military pension, my portfolio would be 20% emergency fund, 40% bonds, and 40% dividend stocks. Of course, I would also add rent and royalties to my passive income plan.
Become a Bonafide Investor IV: Debt vs. Equity
Ultimately, investing with a long-term mindset will add value to your life. The goal is to build wealth slowly, not overnight.
You’ll do fine if you can live below your means, earn 4% with DGI and BGI, and make additional income from rental rooms or writing books.
Your overall plan will make you rich, not bonds and stocks. They are part of a more significant mindset of paying yourself first and constantly seeking knowledge and education. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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