It’s been a difficult year for investors…
The first half of this year was the worst-performing six-month period for the stock markets going all the way back to 1970.
Put another way, the last time stocks performed this poorly, Richard Nixon had just entered the White House. Neil Armstrong and Buzz Aldrin had landed on the Moon the year before.
For many of us, this truly is an unprecedented market.
But I’m not here to remind us of the volatility or worry about the future. Today, I’d like to share a strategy to navigate this period in time.
As I’ll share, it’s an investment strategy that combines conservative income generation with incredible upside potential.
And in my view, it’s the single best thing investors can own right now.
Finding a Safe Haven
First, I want to assure readers that things will absolutely get better. Longtime investors have been here before.
Market panics have happened before. Governments have certainly done stupid things before. But – once the panic subsided – equities continued to march higher.
And when that happens, growth stocks always lead the way. There is simply no better place in public markets to see outsized returns.
The markets will recover. I can’t promise it will happen next week or next month, but it will happen.
And as we wait for the market to come back, we’ll have to adjust to the period we’re in.
I have a new strategy I’d like to share that is a fantastic way to allocate capital and generate returns… even in a messy market like today.
It’s an investing style that combines safety, regular income, and incredible upside potential.
This new strategy will give us peace of mind as the volatility persists, and it will give us the potential to realize capital gains when tech stocks come roaring back.
The strategy I’d like to share involves an asset I refer to as “X-bonds.” As I said, these are a special class of corporate debt that combine the income and safety of bonds while keeping the door open to incredible upside.
Now, I know bonds are not the most exciting asset. Some investors even think bonds are “boring” compared to equity markets. But there are times to be aggressive, and there are times to be conservative.
With a wildly volatile market, inflation at a 40-year high, and the fear of a looming recession, it is time to get defensive. Until we start to see improving market conditions, boring is best.
These bonds are so interesting right now because we can earn a nearly guaranteed yield on our investment. The only way we don’t get our money back, and our yield, is if a company goes bankrupt.
X-bonds are like normal corporate bonds in many ways. For investors looking for a crash course in bond terminology, here are a few key terms you should know.
Maturity Date – The date that the convertible bond “matures,” and the face value of the bond is returned to investors.
Coupon Rate – The annual interest rate paid on a convertible bond.
Yield to Maturity – The yield that the investor will earn if they hold the convertible bond until maturity and collect all coupons (interest payments) and, ultimately, the face value of the convertible bond.
And you might be surprised at what type of yield is on offer with these investments. Here’s the yield my team and I have uncovered from a series of recent X-bonds:
Airbnb yielding 5.2%
Alteryx yielding 6%+
Cloudflare yielding 7.25%
Nutanix yielding 7.4%
Snap yielding between 1.45–7.2%
Uber yielding 5.6%
Unity yielding 7.04%
Impinj yielding 6.53%
As you can see, some of the best-in-class technology companies are issuing these bonds. And the yield investors receive is very attractive in a market like this.
And once again, these companies are contractually obligated to pay their bondholders.
The only real downside would be if these companies go bankrupt before the maturity date. But for great companies like these, I just don’t see that as a realistic possibility.
The safety and income from these bonds are enough to make them an attractive investment target.
But these bonds can do something else that regular corporate debt cannot. They have the potential to deliver triple-digit returns without all the volatility of investing in the stock.
An X-Bond in Action
In 2016, Advanced Micro Devices (AMD) issued one of these bonds to the market with a 2.125% yield.
That might not seem like much, but the return came with essentially no risk for a high-quality growth company like AMD. There was/is no way AMD was going to go bankrupt.
And investors who held this bond ended up doing much better than 2.125%. If investors purchased these bonds and held them through today, they would have made 10x their money…
That’s right. It is possible to see incredible capital gains with these bonds with essentially no risk. And you probably won’t be surprised to learn that technology is the largest sector to issue these bonds.
If you’re skeptical, I won’t blame you. The idea of combining a bond’s safety and income with a stock’s upside potential sounds almost too good to be true.
But these are very real assets. It’s a great strategy you can implement to navigate the market…
And tomorrow, September 10, I’ll be going live with my full analysis of these investments and my favorite X-bonds to buy today.
If you’d like to learn more, please go right here to be added to the guest list for this event.
Editor, The Bleeding Edge