Here we go again… an investment that calls itself safe… but actually isn’t.

We’ve been here before. In 2008, mortgage-backed securities that eventually sent the global financial system into a tailspin had the highest safety ratings.

They were deemed as safe as fixed income could be.

Until the façade went down.

Thirteen years later, we’re looking at a similar situation.

I’m not saying it’ll trigger a Great Recession 2.0…

But I want to let you know how you can protect yourself and your holdings. And of course, how to make money.

I’ll echo Kris Sayce, our editor, who has been talking about asset allocation recently:

It’s something that most investors likely don’t consider.

Rather than looking at their total return across all assets, they may just look at the return of their stock portfolio… and assume they’re doing just fine.

That’s a big mistake.

That’s why we’re devoting this week to asset allocation 101. It’s crucial if you want to build a portfolio that works for you as a whole… not just part of it.

In a second, I’ll talk to you about one part of your investment portfolio that looks like it’s doing fine… but which can blow up at any time.

If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.

At the Dispatch we have two goals:

  1. To introduce you to the most important investing themes of the day, and
  2. To show you how to profit from them.

We do this by showcasing ideas from our in-house investing experts: Nick Giambruno and Dave Forest. And from the founder of our business, Doug Casey.

Nothing Fixed About This Fixed Income Fund

A research paper is making waves in the financial community. It’s titled: “Don’t Take Their Word for It.”

The paper makes a bombshell claim: “about one-third of bond funds are much riskier than their rating suggests.”

So if you go to a rating provider like Morningstar, enter the symbol of a bond fund you hold, and see five stars… you probably should take that with a grain of salt.

The reason why bond fund managers try to game the rating system is very simple…

Low interest rates. They are your income killers.

They are the reason why bonds and stocks don’t pay much in income.

…Which investors still want. And where there’s an unmet need, there’s money to be made.

This is why one-third of the bonds mutual fund investors hold are riskier than they seem. If you crank up the risk, the yield also goes up.

How to Protect Your Capital and Increase Income With Little Extra Risk

So it would be a good idea for you to review your bond holdings. They may not be as bulletproof as advertised.

You can also take a look at this bond ETF: iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). It holds investment-grade bonds and has a transparent portfolio structure. It also pays about 2% interest.

There are other ways to protect your portfolio and increase the odds that it delivers the performance you need.

Say you have $10,000 in your “bond” portfolio. The number one thing you expect from it is limited risk.

So here’s an idea. Instead of parking all of that in a bond fund, how about a split like this:

  • 90% in the least volatile bonds possible;
  • 10% in publicly traded warrants.

For a $10,000 bond portfolio, you put $9,000 in an ETF like iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) mentioned above.

As of writing, this ETF is up 3% over the past three months, and it pays 2% interest.

And as for the remaining $1,000… You could try splitting it into two or three parts and buying warrants with this capital.

Good investing,

Andrey Dashkov
Analyst, Casey Research