Ask almost any investor what they fear most as we head into 2019, and the answer is usually quite clear…
Another major market tumble.
Why really doesn’t factor into their thinking. Simply that it could happen is what has a lot of folks jumpy.
My email is overflowing with questions regarding my take on recent market moves.
Stocks are up… then down… then up again.
We’ve talked at length about “why” in recent weeks, and you’ve got a handle on that. If not, here’s an article that lays it out for you, in case you’re joining us today for the first time or in case you’d like to reread some of my earlier perspective.
Computerization, a change in psyche, slowing growth, politics, China, Brexit… they’re all tremendously complicated inputs. But they’re also potentially very profitable – at least if you know what to look for.
Which stocks can survive the storm? Puts, inverse funds, the Weekly Whizbang… tactically speaking, there are all kinds of ways you can trade current events for big profits.
The conversation has shifted, though.
Now you want to know if there’s any place to hide.
In a word…
In fact, the recommendation I want to share with you today may just be the biggest source of hidden profits on the planet today.
What’s more, it’s primed for a huge rise the next time stocks take a tumble.
Importantly, the global trading community will have your back, because they’re going to be buying the very same thing for exactly the same reason.
They want safety.
It doesn’t matter whether you’re talking about a few thousand dollars or even billions.
The principle is the same.
[Potential $23,441] Make the U.S. government fork over the unpaid funds it may owe you!
You can line up your money right now with just one choice.
The 10-year U.S. Treasury.
Right now, yields have risen and prices have fallen in preparation for higher rates from the Fed. They’re down slightly from a high yield of 3.25%, set on Oct. 5.
Yields, as you can see, have just crossed below the 200-day moving average of yields, which tells me the trade is picking up speed. I can easily imagine yields settling around 2.5% or even 2.25%, depending on how rocky things get.
Remember, yields go down as bond prices as skittish traders flock to them and the markets get dicey.
Don’t worry if you have to read that sentence a few times to really “get it.”
You’re not alone.
Bonds have their own unique language, and the inverse relationship between rates and prices is complicated. I know more than a few seasoned professionals, incidentally, who still struggle with the relationship between prices and yields!
The easiest way to play this is to buy a few 10-year bonds, through your broker or directly from the U.S. Treasury via TreasuryDirect, where you’ll be bidding right alongside the big money at auction.
While that’s the most direct path, there are two drawbacks: 1) you’ll have to buy at auction, which means you will receive your bonds at whatever yield is determined in the bidding process; and 2) you’ll potentially have to tie up a larger block of capital than you’d like.
What I’d rather see you do – and what I recommend for most investors – is to simply buy a bond ETF like the iShares 7-10 year Treasury Bond ETF (NasdaqGM: IEF), which gives you exposure to the intermediate U.S. Treasury market anchored by the 10-year U.S. Treasury.
It’s run by BlackRock Inc. (NYSE: BLK), and that gives me a lot of confidence because they’re one of the single most capable and savvy managers out there.
The fund is selling at a slight premium ($102.59), but don’t let that sway you. Expenses are a low 0.15%, which means most of your money will be doing what it’s supposed to.
It’s the stability we’re after.
In closing, IEF is not something you want to buy and hold.
It’s a protective trade intended as a “safe harbor” if the you know what hits the fan and the demand for insurance against unsavory market conditions increases. It’s a move intended to be used in conjunction with the balance of your holdings, not in lieu of them.
Keep in mind that the goal here is to buy IEF when things look like they’re going to go to hell in a handbasket and sell it when a rosier picture emerges.
Just like the big money.
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