That comfortably rich person should Avoid Bonds Totally, Cramer says. Instead,real estate trusts and other trusts like KMR (not sure this is the symbol, but it's Kinder Morgan) and the like. Because bonds -- any bonds -- will make you poor again. Why KMR and the like? High payouts, some equity risk, but without the bond risk. "The low interest rate environment is Bernanke's austerity program for the rich."
The transcript:
Lightning struck, not once, but twice to two people this weekend... hey, it's the good kind of lightning... the kind that puts hundreds of millions of dollars in people's pockets. And on a day where the averages backslid, with the Dow dropping 19 points... it's worth discussing what the heck the mysterious winner of the $590 million Powerball competition, and David Karp, the man who just got hundreds of millions of dollars for selling Tumblr to Yahoo, should do with their newfound money.
Boy, they've come to the right place, because this is exactly what I used to do for people who made fortunes, at Goldman Sachs, and then at my own hedge fund, before I retired to do television and run my charitable trust. Oh, and for those of you who don't already have millions of dollars just yet, or maybe 1/100th of that just yet, you can learn some very important lessons from this too.
1. You only need to get rich once. Lower your risk.
2. Diversification across the whole span of asset classes. Own gold bars.
3. Have some high-end real estate and masterwork paintings, assets that have held up in hyper inflation, diversify both in domestic real estate as well as raw land.
4. Invest in U.S. Treasuries (20%), municipal bonds and corporate bonds, not in stocks, and not in bonds with any possible default risk whatsoever.Alright, all of that is something I would normally do for someone who is super-rich. That's what I would have done in the '80s and '90s and even as recently as 2009. Oh, but these are not normal times now. Oh no, not for bonds. At the moment, if I were given this money, do you know that I wouldn't tell them to do any of these fixed-income alternatives that I just outlined. Now, I would probably put 50% in overnight cash. And that would be waiting for the Fed to blink, because all day all people ever talk about is, the Fed is going to blink. So I can't be oblivious to that. One day, the Fed will raise rates.Until then, these rates for all income- or fixed-rate instruments, or every part of the spectrum, are so low that they are indeed dangerous, and I don't want anyone to be buying them.So right now, if I were managing Powerball winners, or David Karp's newfound wealth, I would do what I know many rich people are actually doing; I would buy higher-yielding master limited partnerships, or MLPs... higher-yielding real estate investment trusts... and some of the better stocks of companies that are serial dividend raisers. Why these? Because the wealthy are backed into a corner. They're backed into a corner of these offerings by the Fed. And I've been thinking about it. You know what the Fed's really done here? They've created an austerity moment just for the rich. The Fed's essentially mandated that rich people will not be able to make money by stuffing their wealth into bonds anymore. In this environment, the rich have to risk something in order to stay ahead of inflation. That's Bernanke's plan.What's the first thing I would buy?...
1. Oil master-limited partnerships. Kinder Morgan Energy Partners, KMP; and Enterprise Product Partners too, EPD, yielding 5.9% and 4.4%, respectively, getting a nice blend of 5% and change. Williams Partners, WPZ, at 6.5% yield.
2. Real estate investment trusts: Healthcare Trust of America, HCT, which yields 4.4%.
3. Classic dividend growers: Stocks like Johnson & Johnson and General Mills, two fabulous serial dividend raisers, of course.Yep, I know, these certainly have risk. Equities have risk. But right now, the risk from owning these stocks is less than the risk you get from my traditional bond-heavy methods of investment for the wealthy that I detailed earlier.
Here's the bottom line...
Boy, they've come to the right place, because this is exactly what I used to do for people who made fortunes, at Goldman Sachs, and then at my own hedge fund, before I retired to do television and run my charitable trust. Oh, and for those of you who don't already have millions of dollars just yet, or maybe 1/100th of that just yet, you can learn some very important lessons from this too.1. You only need to get rich once. Lower your risk.
2. Diversification across the whole span of asset classes. Own gold bars.
3. Have some high-end real estate and masterwork paintings, assets that have held up in hyper inflation, diversify both in domestic real estate as well as raw land.
4. Invest in U.S. Treasuries (20%), municipal bonds and corporate bonds, not in stocks, and not in bonds with any possible default risk whatsoever.
Alright, all of that is something I would normally do for someone who is super-rich. That's what I would have done in the '80s and '90s and even as recently as 2009. Oh, but these are not normal times now. Oh no, not for bonds. At the moment, if I were given this money, do you know that I wouldn't tell them to do any of these fixed-income alternatives that I just outlined. Now, I would probably put 50% in overnight cash. And that would be waiting for the Fed to blink, because all day all people ever talk about is, the Fed is going to blink. So I can't be oblivious to that. One day, the Fed will raise rates.Until then, these rates for all income- or fixed-rate instruments, or every part of the spectrum, are so low that they are indeed dangerous, and I don't want anyone to be buying them.So right now, if I were managing Powerball winners, or David Karp's newfound wealth, I would do what I know many rich people are actually doing; I would buy higher-yielding master limited partnerships, or MLPs... higher-yielding real estate investment trusts... and some of the better stocks of companies that are serial dividend raisers. Why these? Because the wealthy are backed into a corner. They're backed into a corner of these offerings by the Fed. And I've been thinking about it. You know what the Fed's really done here? They've created an austerity moment just for the rich. The Fed's essentially mandated that rich people will not be able to make money by stuffing their wealth into bonds anymore. In this environment, the rich have to risk something in order to stay ahead of inflation. That's Bernanke's plan.What's the first thing I would buy?...1. Oil master-limited partnerships. Kinder Morgan Energy Partners, KMP; and Enterprise Product Partners too, EPD, yielding 5.9% and 4.4%, respectively, getting a nice blend of 5% and change. Williams Partners, WPZ, at 6.5% yield.
2. Real estate investment trusts: Healthcare Trust of America, HCT, which yields 4.4%.
3. Classic dividend growers: Stocks like Johnson & Johnson and General Mills, two fabulous serial dividend raisers, of course.
Yep, I know, these certainly have risk. Equities have risk. But right now, the risk from owning these stocks is less than the risk you get from my traditional bond-heavy methods of investment for the wealthy that I detailed earlier.Here's the bottom line...
▼ ▼ ▼ ▼ ▼
You only need to get rich once. But because of Fed-mandated bond austerity, we have no choice. The Powerball winner, and Mr. Karp of Tumblr... at the moment, you need dividends from stocks, not coupons from bonds. You need safety. And right now, the safety's more in higher-yielding stocks than it is in much lower-yielding bonds. Oh, and memo to everyone else watching: bonds are just as dangerous for you too.
