I’ll hand it to high-profile analyst Meredith Whitney… She’s bold.
She’s also got it all wrong when it comes to one of my favorite income investments. But because she’s so off-base, she created one of the year’s best opportunities to buy.
If you fell for the hype, you missed out. More importantly, if you make it a habit to fall for that kind of hype, it’s certain you’re missing out on many more big opportunities available right now. Let me explain…
Last year, Whitney went on 60 Minutes and predicted a collapse in the municipal bond market. She said 50 to 100 “significant” municipal bonds would default, adding up to “hundreds of billions of dollars.”
[ad#Google Adsense 336×280-IA]Municipal bonds represent promises from local and state governments to pay back money they borrow. In exchange for borrowing money, they pay the bondholder interest plus the original money (the principal) back at maturity (which ranges from two to 30 years).
Holders of these “munis” receive income exempt from federal income tax and, in many cases, state and local income taxes. This makes them extremely attractive with lots of folks, including retirees.
But Whitney’s call terrified a lot of muni investors. Last December, when she went public with her claims, billions of dollars flowed out of municipal bonds. Some of the biggest muni-bond funds were selling at huge discounts… and paying taxable-equivalent yields as high as 10%.
That was too good to pass up. I urged Retirement Millionaire readers to buy after the panic. I knew Whitney’s “doomsday” scenario was way overblown. (You can read my full argument here.) I was right.
Brighton, Alabama is the only municipality that’s missed a general-obligation debt payment this year. Keep in mind, Brighton has a population of less than 3,000. So this is hardly a major default. The total amount of defaults in 2011 is around $1.1 billion (or about a quarter of last year’s defaults).
My readers are already up 16% on one of the muni bond funds I recommended in March. And they’re still collecting stable, tax-free income.
Munis aren’t the screaming deal they were earlier this year. Investors aren’t so afraid of them anymore. But there’s a bigger lesson here… and maybe an even better chance to profit right now…
The stock market just finished one of its worst quarterly performances in history. The benchmark S&P 500 index fell 18% in less than two months. This has created some terrific bargains in safe, blue-chip, dividend-paying stocks.
Intel, for example, is the undisputed global leader in semiconductors. But it’s barely trading above 10 times earnings. It’s hard to find such a dominant company trading cheaper than that. It also has a near-record-high dividend yield of 3.7% (and plenty of cash to continue increasing it).
As I mentioned in September, America is still THE place to get rich in the world. Yes, it has problems, but these problems are being overblown. I agree with Warren Buffett that America’s best years are ahead of it. And with some of the best companies in the world selling so cheap, it’s time to buy.
The fear and volatility we’re seeing today is creating periodic “fire sales,” allowing you to buy valuable assets for pennies on the dollar. Taking advantage of the panic will set you up to make big, safe gains down the road… just like we did with municipal bonds.
If you can ignore the “doom and gloom” hype, you can buy some of the world’s best businesses at incredible prices.
Here’s to our health, wealth, and a great retirement,
— Doc Eifrig
P.S. As I showed you today, if you follow the crowd with your investments, you’re going to miss out on some of the safest wealth-building ideas out there. But if you take advantage of ideas like these — and a few more unconventional strategies — you can retire rich with a much smaller nest egg than you might think. Learn how here.
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Source: Daily Wealth