How to Get High, Risk-Free Returns

It's a terrible time to be a saver... Inflation is high, rates are low... Used-car pricing is still out of whack... Using inflation to your advantage... Earning 7% risk-free... An even better fixed-income investment... How to get high, risk-free returns...

It's a terrible time to be a saver...

Inflation is moving higher... And interest rates are still close to zero.

In today's Digest, I (Bill McGilton) want to discuss what's happening with inflation... and I want to share with you a way to earn 7.12% in a risk-free government debt instrument.

Yes, I said 7.12% risk-free...

Here's the deal... Inflation is here.

In November, the Consumer Price Index ("CPI") – which measures the average change in prices that consumers pay for a basket of goods and services – increased by 6.8% when compared with November 2020... That's the largest 12-month increase since the period ending in June 1982.

As the chart below shows, inflation started to shoot up in April. And for the past seven months, the CPI has increased by 5.6% on average...

The reasons inflation kicked into higher gear stem from the pandemic... ultra-loose monetary conditions, stimulus checks in the hands of idle, homebound consumers, and supply and labor shortages... In other words, extra money is chasing fewer goods and services. The combination has put upward pressure on prices.

After months of saying otherwise, Federal Reserve Chair Jerome Powell finally admitted that inflation is no longer "transitory"... and will last "certainly through the middle of next year."

Inflation is a complicated subject...

In his Federal Open Market Committee comments last week, Chair Powell didn't tell us anything we didn't already know... Anyone who shops at a grocery store, drives, or buys home supplies will tell you that they're seeing higher prices in real life.

We all know prices for basic products go up over time. That's because the money supply expands over time... It's why a $0.45 Big Mac in 1967 now costs around $5.65.

But it doesn't mean there won't be years when the price of a Big Mac falls. It just means over the long term, we should expect prices for basic products like Big Macs to rise.

At the same time, technology tends to get cheaper over time thanks to human ingenuity. For instance, monthly smartphone plans – to use a powerful mini-computer – now cost less than what a mobile voice service alone cost 20 years ago... Technology is a disinflationary force.

So it's not a question of whether prices are going up... In general, prices are always going up. The question is, at what rate are prices going up?

Looking at the CPI since 1970, we can see that an index at 6.8% is historically very high... But we have a long way to go to reach the inflation levels we saw in the 1970s and early 1980s...

Where the rate of inflation goes from here will largely depend on how fast supply chains normalize from the pandemic... At this point, it's not anywhere near the double-digit numbers of the 1970s and 1980s.

But it's also not going away anytime soon...

As we covered in the November 11 Digest, the prices of normally depreciating used cars have gone ballistic over the past year and a half.

Automobile-auction company Manheim has developed an index to track used-car prices... It's called the Manheim Used Vehicle Value Index.

We'll spare you the details about how the calculations are made... But from April 30, 2020, to November 30, 2021, the index showed that the value of used cars increased by an average of 91%... That's almost double. The following chart shows that used-car prices continue to skyrocket.

Fed officials acknowledge that inflation has now kicked into higher gear... and that the Fed has to pull back on its ultra-easy monetary policy. That's why last week it strongly signaled that it plans to raise interest rates next year.

First, it will "taper," or reduce, its monthly Treasury and mortgage-backed securities purchases – stopping them altogether by early 2022... As the Fed reduces its bond purchases, a "crutch" is removed under bond markets – causing upward pressure on interest rates.

Next, the Fed will start raising interest rates directly – as early as the first half of next year. When the Fed raises interest rates, it reverberates throughout the economy – increasing borrowing costs for mortgages, car loans, and credit cards. Higher interest rates tend to reduce borrowing... cooling the economy and thus the rate of inflation.

Inflation is high now, but the Fed is not acting for months...

The Fed's low-interest-rate policies combined with high rates of inflation makes it a terrible time to be a saver...

In real terms, savers are losing money when they lend it to the government or keep it in the bank.

For instance, a 10-year Treasury is yielding around 1.5% annually. And the average rate of inflation over the first 11 months of 2021 is running around 4.5% annually... At this point, savers are losing around 3% annually in real terms (4.5% inflation minus 1.5% 10-year "risk free" rate equals 3%).

And that's factoring in the yield on a 10-year Treasury. Folks keeping their money in the bank aren't getting anywhere close to a 1.5% rate. The average interest rate for bank accounts was just 0.06% in the week ending November 24, according to consumer financial company Bankrate.

At this point, savers have awful options...

They can either keep their money safely in the bank or in cash and gradually lose purchasing power... or they can try their luck in generating positive returns and hope to beat the rate of inflation.

In other words, they can gamble their savings in their favorite asset class – stocks, real estate, or cryptocurrencies.

For the most part, investing in risky assets has been working out great since market lows in March 2020. But when sentiment inevitably turns... losses can get big. It's not an easy choice.

Of course, it's up to each individual to decide the best balance of cash and investments based on their risk tolerance.

So today, I share a way to use inflation to your advantage...

And to earn up to 7.12% annually with no repayment risk...

I'm talking about inflation-adjusted Series I savings bonds issued by the U.S. Treasury. Because of the spike in inflation, Series I bonds are now yielding 7.12%...

This rate will apply from November of this year through April 2022. Then it will be adjusted again (every May and November) for another six-month period based on the rate of inflation at that time as measured by the CPI.

To take advantage of I bonds, you will have to go to TreasuryDirect's website and set up an account... Under the tab "BuyDirect," you will see an option to purchase Series I savings bonds. From there, it's easy enough to complete the purchase.

Please note... the website is a bit clunky – so it's best to set up an account when you're in a good mood and have time... But after using it a few times, you'll get accustomed to how it works.

Besides I bonds, TreasuryDirect provides access to other government offerings – like bills (maturing in one year or less), notes (maturing in two to 10 years), bonds (maturing in 10 years or more)... among other options.

As an investor or a saver, it's worth becoming familiar with the site to have additional options to manage your cash.

The Series I savings bonds with the 7.12% rate we're discussing are an accrual-type security – meaning interest is added to the principal, and subsequent interest is paid on the accrued, or growing, principal... It will earn interest for up to 30 years if you don't cash them out sooner.

There are some nice tax features to these bonds as well... You have the option of waiting until you cash them in to pay federal taxes on the interest. It's also possible to reduce federal income taxes further if the interest is used for higher educational purposes. And finally... there are no state or local taxes.

Series I bonds do have some drawbacks...

There is a $10,000 per-person, per-year limit on purchases of Series I bonds through TreasuryDirect... However, if you make a purchase using a tax refund, you can buy an additional $5,000 worth of bonds per year, per person... And if you're married, you and your spouse can each buy up to $10,000... Additionally, you can buy up to $10,000 worth for each child.

An important note... You should buy I bonds with money you don't need access to in a hurry... You can't sell them for a year. And if you sell them before five years, you will lose the last three months in interest as a penalty.

Still, if you can park your cash for at least a year, I bonds are a good alternative. By comparison, the average interest rate for a certificate of deposit with a one-year duration is 0.14%, according to Bankrate.

These Series I savings bonds are good...

But now I want to talk about something even better if you're interested in fixed-income investments...

Stansberry's Credit Opportunities.

Instead of focusing on government bonds, Stansberry's Credit Opportunities goes where the real action is... corporate bonds.

That's where billionaires like Warren Buffett, John Paulson, Paul Singer, and Sam Zell look to scoop up opportunities in times of distress.

Each month, my colleague Mike DiBiase and I scour the corporate-bond universe for the best opportunities we can find.

And let me tell you... it hasn't been easy. The same forces pushing investors to speculate in stocks, real estate, and cryptos have pushed them to speculate in corporate-debt markets as well.

We only make recommendations when we're confident that we have a winner... In recent months, we've made fewer recommendations because the risk-reward setups don't compensate for the froth in the markets.

Our preference is corporate bonds, but we won't recommend buying them when they're overpriced...

We also cover hybrid securities – like preferred stock and tangible equity units. These are equities with fixed-income features.

The good news for our subscribers is that when the Fed raises interest rates to fight inflation, it creates volatility in the corporate-bond market... and quickly. In fact, we're already seeing it.

And that creates opportunities for our subscribers to profit as good corporate bonds get thrown into huge clearance sales.

In times of panic, we move fast... Between March and May 2020, we recommended eight bonds in investment-grade or near-investment-grade companies that produced an average annualized return of 59%.

In other words, an average annualized return of 59% with virtually no risk of not getting paid back... It's hard to find investments like that.

With that in mind, I'd encourage you to check out this presentation from one of our loyal subscribers. He's just like many of you reading this essay, except for one big difference...

Thanks in part to our bond-investing strategy, this subscriber retired at age 52...

I'll let you hear the rest of the story from him. And after that, you'll learn how you can claim instant access to Stansberry's Credit Opportunities at the best offer we've ever made.

Get started right now... The offer expires this week.

New 52-week highs (as of 12/21/21): Cerner (CERN), Invitation Homes (INVH), Knowles (KN), and Seagate Technology (STX).

Our mailbag is filled with replies to Corey McLaughlin's Tuesday's Digest... and they tell us that the pandemic and the ensuing responses to it has pushed a lot of folks into earlier-than-desired or expected retirement...

"Hello Corey, I am one of the many who retired early. I turned 55 in October. My office decided I needed to come back in September, and I decided I didn't want to.

"I have been working on projects around the house and pretty much being my own person.

"Corporate life was becoming burdensome with all of the new restrictions and requirements. So I retired and have not looked back." – Paid-up subscriber Randy U.

"I left work at the end of June 2020. I had only been recently promoted to supervisor in February 2019 at my Navy Civil Service job, GS-11 to GS-12. Together we made improvements as a group through 2019. I would have stayed through 2027, to reach my full SSA retirement age of 67. Then the government said to work from home, due to COVID.

"That was the beginning of the end for me. It resulted in our group having to communicate over phone or email instead of in person. This impersonal communication resulted in me not achieving satisfaction at a sustainable level. It was no longer worth the effort.

"For me it was always about the people and getting their efforts to align for the good of the organization and country. When that was no longer possible due to COVID restrictions, the effort was no longer worth the payoff.

"My wife says that I'm a much happier person, but I wonder how much more we could have accomplished had the government not restricted our freedom.

"I wish this dismal ending was only my experience, but I've been learning that others have suffered a similar fate.

"Thanks for asking and I look forward to your findings from others.

"God bless the USA." – Paid-up subscriber Ron K.

"[I'm] 69 years old... Pastoring for 50 years (yes, I became a pastor at age 19).

"Love working with people. Love pastoring. But...

"I find it ridiculous that the government keeps open bars and marijuana shops and closes churches over COVID fears.

"I find it sad that people are more scared of a disease than they are their own depravity and hatred toward their fellow man.

"I find it disheartening that young people turn away from institutional worship in droves and have no concept of eternal purpose.

"I retired 01.02.2021.

"I was smart enough to take manage my own investments through reading Stansberry Research.

"Now, I'll continue to minister to people because I want to do so, not because I'm paid to do so, and live off my investments.

"I'll say what needs said, do what needs done, and draw the proverbial 'line in the sand' with the government without even thinking of offending a parishioner." – Paid-up subscriber Wade B.

"Yep, I'm one of them, The Great Retirement statistics. Though I like to think of myself as more than just a statistic, but to the government accounting folks that's what we all are.

"At 62 years of age and nearly 50 years in the wireless technology industry, I figured now is a good time (actually this coming Thursday is my last day working for someone else).

"There's several reasons, as I'm sure is the case for all of my fellow retires of late. The markets have been very good to me the past couple of years plus the new CEO at my latest place of employment is murdering the company by killing everyone's morale. Plus, I accomplished much of what I set out to do there anyway.

"I'm sure this sounds familiar to many of your readers. They have money in the bank and work is unfulfilling. Though I probably have another reason most don't share.

"My wife and I have been married for over 40 years and in all that time I traveled for business. She says the longest stretch of time I ever stayed home was perhaps six weeks. Well, COVID changed that. After 18 months of being stuck at home with the wife, I still kind of liked her. I wasn't sure how it was going to work at first. So that fixed it in my head, it's time to retire." – Paid-up subscriber Mike B.

Corey McLaughlin comment: Love the honesty, Mike. Congratulations. Over 40 years of marriage, 18 straight months stuck at home, and you still "kind of like" the missus. There is hope!

"First, congratulations on the birth of your son. While the capital investment in raising him will be enormous, the returns are incalculable.

"Now, on the Great Resignation...

"Did the researchers attempt to find out how many of those over 55 retirees had planned on retiring anyway, pandemic be damned? My wife and I both retired on February 29, 2020, literally days before the stuff hit the fan. I was 67 and my wife 65. Since that date, many have asked us what about the pandemic scared us into retiring.

"The reality is that we had picked that date over eight years earlier. Making that decision so far in advance forced us to continue with our decades of financial plan. There was no making a bad decision and then saying, 'Oh, well. Let's just work an extra two years.'

"True, we benefitted from some periods of exceptional market performance in those decades, but, thanks to good advice, we protected our portfolio from catastrophic loss and stayed the course during the lean times. Thank you Stansberry family." – Paid-up subscriber Eric A.

"What you said about listening to the media rings true with me. I do not watch the 'news.' Instead, I read the Digest daily.

"It has inspired me to create what I call 'Octogenarian Rap.' Picture the old-age home, me in the rocking chair, six little old ladies tottering to the beat of my cane. Here goes...

"The snob-nabobs on either coast, Are quite convinced they know the most

Behind the scenes they're pulling strings, To make sure they are running things

And the military has the juice, To see that they're in constant use

For 20 years they've had a plan, To pacify Afghanistan

Our leaders said let's boogie out, We've won this thing without a doubt

Forget casualties and billions spent, Just leave behind the armament

Whoops, never mind, look here see, We've found a Magic Money Tree

For all you voters everywhere, To live your life without a care

And the real beauty of this con, Things go to hell when we're long gone.

"That's it in a nutshell. I can't help it, you guys are responsible." – Paid-up subscriber Stan S.

McLaughlin comment: Stan, I'm speechless. I can picture the ladies "tottering" quite clearly.

This might be the letter of the year. We're glad to have you as a reader... and please, please send more "rap" if it strikes you.

"Welcome back Corey – we missed you. Your Digests are readable, interesting, and well-balanced. And hearing about you and your family makes us feel like we know you as a friend.

"Merry Christmas and Happy New Year to you and yours." – Paid-up subscriber Paul H.

McLaughlin comment: Well, this is just about the kindest note I could imagine. Thanks, Paul. Happy to be back and happy holidays.

Regards,

Bill McGilton
Kyiv, Ukraine
December 22, 2021