China is neither a sure thing for retirement riches – nor is it a bubble ready to burst or a money pit of stock scams. Instead, it’s an evolving and rapidly developing market and the second largest economy on the planet that should be part of everyone’s retirement accounts.

I’ve been traveling to and working in China going back many, many years starting back when the nation was just beginning its massive and highly successful transformation.

Along the way, I’ve had the privilege to work with, teach and lecture at Webster University where my father is Chancellor and where I’m an adjunct professor and board member of the University’s George Herbert Walker School of Business.

Webster was the first US university to gain licensing and approval for campuses in China and is perhaps the only university that has a stand-alone entity rather than just partnerships with local institutions or the government.

With campus and teaching facilities in Shanghai, Beijing, Chengdu, and Shenzhen – Webster has been a great source of local knowledge and economic and market research – crucial for any investment in this nation.

Rick Foristel has been the regional director of Webster China since the early days of the initiative. And over the years, he has developed a great network of local business and government leaders that have served the University well – not to mention aiding my understanding of companies and the economic and market developments in China.

In addition, Rick has been a great friend.

Periodically, Rick pens some missives and comments on local conditions on the ground in China. In this issue I’m providing you some of his recent writings to me.

Rick Foristel, On the Ground in China:

In China, I’ve noticed undercurrents and mood changes from people I know, but this is a big, diverse country. I think it is best to consider what we are hearing and seeing, and how events might affect us.

Some Downturn, at Least in Shanghai

I have been noting more and more closures of small retail businesses, not just one, but several at a time and at high profile locations, like Shanghai subway stations. In the past few weeks I’ve seen doors shut and shelving hauled at shop locations at both the Shanghai South Railway Station and at Long Bai Xin Cun.

Businesses close and the empty spaces add to the overall vacancy rate at the same area. Long Bai Xin Cun is on the west of Shanghai, just minutes from the new newly opened Hong Qiao Shanghai Airport and adjacent to Little Korea. In 2009 large numbers of Koreans returned to South Korea from Shanghai because of the economic downturn. 100,000 take away 20,000 based on media accounts.

Add them up: the 2009 downturn, the end of the Shanghai Expo and now three months of austerity measures, meaning fewer loans from banks. Shanghai Daily reported this past week, “the number of new residential projects (full apartment complexes) opening in June will be 39% fewer than last year.”

Fewer projects like these mean fewer jobs at the factory level, where people make all the materials that have gone into the residential apartment boom.

Not Enough Jobs for Bright Graduates

At the same time, there is the problem of new graduates from all over China. There’s a backlog from the past three years in Beijing, where graduates and others are looking for anything that looks like a job. Thousands of young people live in small cubes, together known as si he yuan.

These are not office cubicles, but cage-like living spaces. The government is trying to figure out how to find something to do with this month’s new graduates.

At the recent G8 meeting, President Nicolas Sarkozy noted China “still has considerable poverty.”

Electricity and Coal, Again

Coal – the mining of, transport to and processing of – might be a bright light in terms of opportunity. Domestic coal mining and production is in double digit growth, according to the China National Coal Association.

It means money on energy is being spent internally.

There is a lot of activity in the sector, and the government is trying to get coal out of the ground, even as others seem to get in the way, even this past week:

The Mongolian who was killed, Mergen – who, like many Mongolians, was known by a single name – had been involved in protests before over the expropriation of grazing lands for coal mining. He had been trying to block a convoy of trucks from driving through grazing lands, and now a protest is brewing, according the L.A. Times, in Inner Mongolia.

Even though inflation is a bad word in China, the price for thermal coal is up, while the entire country is set for blackouts throughout the summer. The government is choosing conservation rather than buying more coal, or passing on the cost of production to users and end consumers. Conservation will be mandated by the government shutting off electricity.

The Drought

Certainly no one needs a drought in the middle of all of this, but it is the worst in 70 years, says China Daily in its Weekend Edition. It has been dry since January of this year in the provinces of Hubei, Hunan, Jiangxi, Anhui, Jiangsu and Zhejiang. It is affecting land crops and aquaculture.

With the drop of fresh water to the sea, salt water is backing up the Yangtzee, making it impossible to pipe fresh water to reservoirs in Shanghai. For now, the tide has gone out, and it appears that Shanghai can store water for the next couple of weeks, until the tide rolls in again.

Changes in Transportation

Some bright news: In Beijing, where there are 4.89 million cars in operation — and only 2.17 million parking places, says the Beijing Transportation Commission — the government increased gasoline prices and doubled the price of car parking in Beijing.

This has led to some drivers garaging their cars, and taking bicycles and public transportation to work. Each weekday, 21.44 million people use public transportation in the capitol city.

And, in Shanghai the government-owned car company, SAIC, says that it will be rolling out both hydrogen fuel and plug-in cars. Likely, they are not talking to the electric power people, who count on coal to produce electricity.

The new plug-in battery cars — in addition to cell phones, laptops and pads — rely on rare earth elements. During May, Beijing imposed new policies on the regulation of rare earth mining, processing and selling in China.

At present, reports China Daily, China supplies 95% of the global demand for rare earth elements. We might look for the consolidation of the entire industry, with a result that would look more like current telecommunications and oil industries.

The Original, 20th Chinese Entrepreneurs

From Wenzhou, a long-time hotbed of entrepreneurship 215 miles SSW from Shanghai:

Many times, when you are trying to find an apartment for rent, the landlord is from Wenzhou, who is using individual apartment units as reliable investments spun off from wealth created by Wenzhou craft and factory operations.

Beijing has asked the Wenzhou money people to invest in something other than more apartments and commercial buildings. The government wants them to invest in innovated fields, including renewable resources, according to the China Daily.

Lower Middle Class Chinese Moving About China

Finally from Shanghai: we just hosted students and a professor from Webster Geneva for two days of discussions, talks and tours in Shanghai. They almost all complained to us about our selection of budget accommodations, Jingjiang Hotel on Siping Road. The property is a national chain operated from Shanghai, and is a SoE.

The biggest complaint was the very hard bed — not unusual for Chinese people, but not workable for Westerners. And yet, the location was fully booked, including our group.

Other players in the budget hotel China market include Home Inns and Management, Shanghai Motel Management (Motel 168 and 268), 7 Days Group Holdings, and Haunting Inns and Hotels.

China Daily reports Morgan Stanley is trying to divest a 59% interest in Shanghai Motel Management. From 2000 to 2008 the budget industry grew at 82% a year, but in the first quarter of this year, net income fell substantially in several of these companies.

Rick Foristel is the China Regional Director for Webster University (www.websterchina.com) which is committed to leading global education has over 107 campus locations around the globe and is based at its home campus in Saint Louis, Missouri (www.webster.edu).

May has been mayhem for many retirement accounts – here’s how to pull out of the dive before it’s too late.

So, you’ve just finished your after dinner cognac and perused the movie list for your seatback entertainment. You’re just about to turn off your reading light and catch some needed shuteye – as you close the book on your successful business meetings in Brazil, and begin to think about your favorite brasseries in Paris…when it happens.

The plane seems to be hitting some crazy turbulence. Ok – this happens and you think little of it, as you know that the guys in the front of the plane are professionals who know what they’re doing.

But then you look a few seats up the aisle and see the captain (the guy with the four stripes on his shoulder boards) blissfully watching a video and enjoying a coffee.

Ok, so he’s on break. There surely must be some competent co-pilots in charge on the flight deck. But then the plane starts flailing about even more and you see the captain move to get back to the controls.

Moments later the plane seems to be pitching upward, engines roaring – and yet it seems to be slowing.

And for the next 4 minutes you and your fellow passengers experience terror beyond comprehension as you plunge into the Atlantic.

This is the story of some 228 passengers and crew of Air France flight AF447 just two years ago this June 1st en route from Rio de Janeiro to Paris.

As you’ve heard or read, after exhaustive searches – the black boxes and flight recordings have been found and examined – and it isn’t good news. The Airbus A330 crashed in seemingly tolerable weather and flight conditions. But whether it was the speed sensors supplied by Thales (THLEF) of Paris, or the autopilot or other components – Airbus (EADSF) doesn’t know what, if anything, failed.

But the flight recordings arguably demonstrate that the junior officers in charge at the time let the plane stall out, and after calling for the captain – none of the three knew or did what was needed to keep the plane flying.

As a frequent air passenger – I read through and listened to what has been released so far and it is very scary – because incompetence is what comes to mind over and over.

Where’s The Trust?

Fatal mistakes of course aren’t limited to aviation. Every trading day we see mistakes, incompetence or questionable motives resulting in injury or death for retirement portfolios.

Throughout this month, many have been eyeballing the CNBC ticker at the bottom of their television screens and asking the question – when will the plunges in the S&P 500 and Dow Jones come to an end? And who really is running the show when it comes to the securities inside our retirement portfolios?

When you’re investing in a company, a fund or with a manager – you have to trust that the individuals running things are not just up to the task – but are also working for your interests and not just theirs.

Now we know that there have been, and will always be, plenty of folks running public companies who are focused on little more than their own net worth and not a smidge on shareholders’ well-being.

But perhaps the biggest issue is when CEOs just aren’t up to the task of delivering for shareholders – many of whom depend upon them for their retirement wealth.

That might be changing for at least one company. This past week there’s been a rising amount of discussion over competence of leadership at one of the largest of the world’s mega-cap companies – Microsoft (MSFT).

Bill Gates might still be Chairman of the Board. But as everyone knows, he checked out long ago and has other agendas well beyond the success of Microsoft’s shareholders. While still possessing some 5 million shares, he’s continued to dump them – including a recent trade in the amount of some 200,000 shares just a week or so ago.

He only retains some 6 percent ownership in the company – not a live or die proposition for his retirement. Yet he still pulls cash from the company – recently listed at close to a million US dollars.

Steve Ballmer is the guy in charge, and it hasn’t been a good ride for shareholders as Microsoft has been pretty much dead money for the past decade or more. MSFT is down in price by over 30 percent, and because Steve doesn’t like to pay folks to own his company – the meager 16 cents a quarter has done little to make up for the plunge in the stock value.

Even the general S&P 500 index has fared better during the past decade – losing a bit less in price and paying a tad more in dividends to put investors a tick or two above breakeven.

So, folks are saying – Steve, what are you doing? Are you up to this job? Or perhaps someone else might be a better choice…

In contrast – consider how a tech company in our Pay Me Strategy portfolio works to bring real gains to your retirement portfolio.

Choi Ge-Sung is the CEO of Samsung Electronics (SSNLF). Samsung has been a holding of mine for more than a decade – and during the same trailing 10 years that Microsoft has plunged, Samsung has soared.

SSNLF’s price gains have topped 330 percent, and while the dividend is small – management just added a bit more cash on top. It all adds up to Long Hauler performance averaging nearly 18 percent annually – year after year.

Ge-Sung isn’t on CNBC regularly. He isn’t seen hob-knobbing at society or sports events. He just keeps his head down and drives his company to deliver the goods – over and over again.

And it shows up in SSNLF’s stellar returns, proving that Samsung’s management is competent to deliver retirement account performance.

But it isn’t just the big and flashy tech companies that need good managers.

How about the mundane business of running a phone utility?

Just as with Microsoft – too many retirement investors have been sucked into trusting AT&T (T) for way too many years.

And the results are pretty much the same. AT&T shares have plunged more than 20 percent during the past decade. And the dividend? Well, it did slightly more than offset the share price loss during the past ten years. Hardly the stuff to make for a rich retirement.

Meanwhile, the CEO of AT&T, Randy Stephenson, has been paying himself millions of dollars in cash and prizes over the last several years – including the current reported compensation package in excess of 12 million dollars for the most recent fiscal year. His retirement looks pretty good.

The Pay Me Strategy approach is different. My idea of a shareholder-focused phone company is Otelco (OTT) – which I began recommending just after it came to the public market back in 2004.

The shares have risen since then by more than 20 percent – but the dividends are the real story. They’ve kept piling up at a large and consistent pace, generating an overall return in excess of 138 percent. That’s an average annual return of nearly 15 percent.

As for the CEO of Otelco – Mike Weaver – he’s paid a salary of only 345,000 dollars and has been given only modest raises since the company came to the market these past several years.

And along the way, he’s kept management zeroed-in on keeping costs down and investing in expansion as it makes sense – all the while focused on delivering value to Otelco’s individual shareholders.

That brings us to another business one might think would be pretty much a no-brainer…

One of the first places one might look to cash in on for a richer retirement would be…the petrol business. Alas, for every retirement income gusher, there are far too many dry wells.

Over the past decade, oil itself has been a pretty good investment. If you had bought a barrel of crude and put it in your garage – you would have gained more than 250 percent. That’s great, but who has the space for a barrel of oil? And, it’s pretty hard to cash out when you want or need to.

Instead, many retirement investors went for Wall Street’s idea of investing in the oil business and bought ExxonMobil (XOM). Not as bad as Microsoft or AT&T – but not even close to the performance of the underlying oil market.

ExxonMobil gained some 85 percent – good – but still only a fraction of oil’s gains. And as for dividends, 47 cents a quarter – that’s 2.2 percent annually – isn’t paying for a rich retirement.

Yet again, it’s the CEO who has been paid well. Rex Tillerson was paid over 28 million last year alone. His retirement is well funded, thanks to ExxonMobil’s trusting shareholders.

The Pay Me Strategy approach to oil has been the same as for technology and telephones: Go with CEOs who are looking out for shareholders’ fortunes before their own.

I’ve recommended such a petrol company since it came to the market in 2006. Linn Energy (LINE) has generated a return of about 200 percent since then – more than 4 times the gains in crude oil during those same years.

And along the way – the company has kept paying dividends currently running at just a few ticks less than 7 percent – but gaining on average for the past five years by over 52 percent.

All told, that amounts to an average annual return for retirement investors in excess of 21 percent.

Guess what the CEO and founder has been paying himself? Mike Linn got bi-weekly checks amounting to 630,000 dollars last year – a bit more than in years past – but the shareholders’ returns prove he’s been worth it.

Like the CEOs of Samsung, Otelco and other companies inside The Pay Me Strategy – Mike has earned his keep by focusing on running his business – fixating on bottom lines and not stretching beyond the core mission of the company.

And delivering cash and gains year in and year out to his shareholders.

Ten to Buy — and Ten to Shun

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Municipal bonds are rallying for a reason – they pay well. The market is finally realizing that they aren’t all doomed.

Imagine…getting paid 7 percent in monthly checks coming into your retirement portfolio and getting a pass on the tax owed to Uncle Sam next year.

For most folks, that’s like getting a 10.7 percent yield on a taxable-equivalent basis. But it gets better.

Think about the yield environment over the past several months. Prices of many quality companies paying good dividends have been heading higher – meaning that new purchases are yielding less.

That’s been the case with many of my favorite minibonds, and even some of my favored global bond funds. I love the big price gains we’ve achieved – but where to put new money?

A tax-equivalent yield of 10 plus percent certainly gets my attention…

But we need to do our due diligence. We need to know how that yield is getting generated – and the likelihood that it will be continued for the months, quarters and years to come. Why bother with yields that look good now but may be unsustainable later?

That’s the reason why, each month, I stress test every stock, minibond and fund inside The Pay Me Strategy. To make sure our dividends are reliable, I put the revenue streams from each of our investments under an analytical microscope – even those that I’ve known and recommended for years and years.

This same approach works with muni bonds – just as it does for oil companies, utilities, corporate bonds or government bonds.

And let’s apply our skepticism a step further. What I’ve learned – and continue to stress – is that the general wisdom of Wall Street isn’t going to do any big favors for you now or in the years to come – when it comes to building a retirement account you can rely on.

This applies to both the buy and the sell sides of the ledger. Right now, Wall Street and its lackeys in the general media are telling you to just stick with the usual stocks of the S&P – paying an anemic average dividend yield of 2 percent, more or less. That won’t keep you ahead of inflation, let alone fund your retirement.

At the same time, when Wall Street tells you not to buy something – then perhaps it might just be worth taking a look at – especially if that something is paying well.

Municipal bonds are not just paying well – but they’ve continued to pay well for decades.

Sure, there have been some municipal bankruptcies over the years. But there have been far more bankruptcies in corporate bonds – not to mention countless companies out there that have cut or eliminated dividends or even gone bust.

You wouldn’t ditch all stocks and bonds just because some have failed over the years – and the same should hold true for muni bonds.

Muni Madness

Right now, some folks are doing their level best to be the go-to guys for muni bond doom and gloom – selling it like hotcakes at a Rotary Club fundraiser breakfast.

And why not? Who hasn’t seen the news about California and Illinois and how the elected officials in Sacramento and Springfield can’t seem to grasp that they have to cut spending and reform the fiscal coffers of their respective states.

And then there are states such as Wisconson – where the folks in Madison are actually doing something to clean up their financials – and they’ve been faced with labor leaders’ hired henchmen storming the capital with torches and pitchforks.

No wonder the average retirement investor has been scared off from muni bonds.

And then there’s the queen of muni madness – Meredith Whitney of Whitney Advisory Group – who made the markets quake in near panic with her call that there would be hundreds of billions of dollars in default across the minibond market this year. She was the guest of choice on all of the networks and papers.

But you know what’s happened? Pretty much business as usual – the sky didn’t fall and most munis keep paying.

Facts Not Fiction

Let’s look past the hype to the broad facts. Whitney forecast 50 to 100 defaults – instead we’ve had 14, amounting to only 600 or so million dollars – most of it recoverable at up to 100 percent by investors in the respective munibonds.

And in the thick of the mess from 2008 – one of the worst years – the total was only around 8 billion bucks. Again, most of it recovered by investors – and for many, at full face value.

Moreover, if you look at the long-term averages – including plenty of deep recessions over the past many, many years – the default rates for munis are very low. In fact, muni default rates are much, much lower than for most other bond markets – and light years better than for corporates.

According to reviews by the leading rating agencies and muni-insurers – the average default rate for muni bonds is very low. In fact, for general obligation bonds around the nation, the rate has been running at less than a quarter of one percent. Meanwhile, corporate bonds of top-tier credit have more than double that default rate.

Even for the worst end of munis – speculative, project-specific issues including prisons and the like – the default rate is running at only 3 plus percent – with corporates of similar characteristics running at multiples of that rate of trouble.

But the real crux of minibond defaults involves recovery. Just because a muni issue delays or misses a payment doesn’t mean that the investors get nothing. In fact, for most muni issues that have defaulted, the recovery rate – for decades running – is 100 percent. That’s right – 100 percent of principal recovered by investors.

Even speculative minibonds, such as toll road revenue bonds, have a recovery rate running at 90 percent – that’s 90 cents on the dollar after the disaster.

You know what corporate bond investors have been getting over the decades when their bonds default? The average is running at only 40 percent – just 40 cents on the dollar.

My Muni Bond Buys

In writings, public presentations and lectures I’ve been recommending three munibond closed-end investment companies: AllianceBernstein Muni (AFB), Nuveen Quality (NQU) and Blackrock Muni (BLE).

The average yield paid by these three collectively is running at over 7 percent – paid in monthly checks. And the average value of the funds is greater than that of the average stock in the market by some 1 to 3 percent.

So, don’t snap up just any muni bond – buy good ones at a discount to the market and get them to pay you monthly.

Over the past trailing year – even as the market prices have been up and down as the doom and gloomers get ink and airtime – prices for AFB, NQU and BLE are still nicely positive around 3 percent – while they keep cutting hefty checks to investors.

That’s been the case for the past decade – the average price gains for all three funds are running in excess of 5 percent per year – with higher yields and less tax owed to Uncle Sam.

You can either buy these three and get paid well – or you can buy into the hype of the gloom and doomers such as Meredith Whitney and get paid nothing.

Nibble on these munis is my call.

With yields lower, good bonds are getting scarcer – and stocks will become the go-to segment for the dividend herd.

by Neil George

I love bonds. I’ve always loved bonds. And the bonds I love most have the two core necessities for any investor – high cashflows and gains over time.

Now, for all too many investors, bonds aren’t thought of in those terms. That’s because the bonds Wall Street pushes tend to pay little and never seem to do much in terms of price gains.

But for those following my Pay Me Strategy – our bonds have of course been successful at ditching that common misperception.

Our 4 core closed-end investment funds have collectively delivered an average return for yet another year of more than 15.7 percent. And with these four global bond funds paying us a current average dividend yield running at 7.6 percent, getting high income and price gains from bonds doesn’t seem like such a hard concept to grasp.

But these funds that focus on markets and nations who continue to improve their credibility and creditworthiness are just the beginning base of our Pay Me Strategy’s bond collection.

Our minibond collection has been just as impressive as our global funds. The dozen minibonds in our model portfolio have continued to gain ground in price – so much so that many are bumping up against my recommended “buy up to” prices that reflect the risk of being called away.

And all the while, these continue to pay ample dividends, running at a current average of nearly 7 percent.

But while the bond market has been good to us for yet another year – there are some limitations facing us for the next 12 months. The market is taking away some good deals for retirement investors.

The supply of attractive minibonds is contracting – with fewer credible new issues and more of the quality older issues either set to be called or at prices that don’t make sense to buy in case of a call.

The most recent call in our minibond collection was the Valero issue (PJZ). This mini performed well for us, gaining in price alone some 43 percent, while paying us originally more than a 10 percent dividend yield.

Now, there are still plenty of our minibonds to buy and re-invest cashflows into. Beyond the Valero issue, there are 11 other minis. And I’m continuing to look around the dark and dusty corners of the New York Stock Exchange’s annex – “The Garage” – for other attractive minis, which I’ll discuss in a future issue, after finishing my stress-tests on the issuers.

But while bonds have been and will continue to be the foundation of the Cash Cows of our Pay Me Strategy – the changes in the minibond market have led me to spend more and more attention on higher-dividend stocks – in markets that are much like what the minibond market was years ago.

Few mainstream analysts have noticed the great deals that are just sitting in dusty corners of the market. But for us, the abundance of quality higher-dividend paying stocks is going to be a greater source of cashflows and gains for the coming 12 months.

This is where the newer Pay Me Strategy portfolio members are coming from.

Stocks You Can Count On

In the “Cash Cow” income section of The Pay Me Strategy there are six common stocks and one preferred. The six common stocks are paying an average dividend yield of nearly 7 percent – and the preferred issue is paying more than 8.7 percent.

But the future as I see it will be stocks from faster-growing economies and markets – where there are still multitudes of quality companies with stocks that few in the mainstream have taken the time to figure out.

They pay their shareholders well – and have done so for many years – including times of market woes and economic downturns.

We’ve begun by adding several of these high dividend stocks to the Nibblers section of our Pay Me Strategy – but look for them to most likely prove themselves out and make the cut to become Cash Cows.

Right now, our new mix of dividend payers includes seven stocks paying, collectively, more than 8.3 percent – and already the gains are beginning to emerge, reflecting buying from at least a few other investors out there who are doing research similar to mine.

The key is focusing on higher-growth markets with higher performing currencies against the US dollar. And in coming months – look for more of these higher-paying stocks that, as with our minibonds – few have heard about until they’ve become too expensive.

Last summer, CNN ran a story of a Fresno, California, commercial painter who learned that what was in a couple of boxes he paid $45 dollars for a decade ago could be worth more than $200 million.

According to CNN, “Art, forensic, handwriting and weather experts teamed up to conclude the 65 glass plates in the boxes were photographic negatives created more than 80 years ago by Ansel Adams, the iconic American photographer whose images of the West inspired the country.”

Admittedly, this is an extreme example of why many of us love garage sales: We love the thrill of finding valuable items at a fraction of the price we’d pay in a retail outlet.

The markets are the same way: While most investors pay “Tiffany” prices for the hyped-up stocks on the S&P 500, there are places where you can find bargains in the markets that will pay you huge dividends — if you know where to look.

One place you can find stock market bargains is known simply as…the Garage.

Few traders have ever ventured to (or are even aware of the existence of) Wall Street’s dimly lit trading annex known simply as The Garage. This NYSE annex won’t show up under the spotlight of the mainstream media. But it’s home to some of the market’s most undervalued, lucrative investment vehicles.

The very fact that the securities traded in The Garage aren’t on the mainstream marketing machine’s radar means that some of the best deals can be found there. Their prices haven’t been hyped through the roof. And because these securities aren’t being publicized, there’s also a good chance the money grubbing investment banks, brokers, and corporate management don’t have their hands in the cookie jar…

Which means a larger share of the returns from these investments go to individual investors like us.

Wall Street’s Tiffany-Priced Stocks Can’t Hold a Candle To These Garage-Sale Bargains

Some of the safest, highest-yielding investments found in The Garage are minibonds. What is a minibond? Basically, it’s a bond packaged to look and trade like a stock – at a price that’s actually within the reach of regular investors. Instead of paying $1,000 per bond and being forced to trade in lots of thousands or millions of bonds at a time, a minibond is much easier to buy, with face values typically around $25 or less.

This gives smaller investors the chance to enjoy the same benefits as big time bond traders – one of the biggest being that it’s much easier to evaluate the risk of a bond than a stock. Instead of factoring a myriad of market and company conditions, all you have to ask is “Will this company be able to pay its debt?”

click on image to enlarge

One example of this is Liberty Media’s minibond (PYL). I dug this one up in The Garage back in February of 2009 when it was paying a dividend of a little over 8%. Since then, its total return to date is 224%.

Compare that to Disney (DIS), a highly touted Wall Street stock which returned 69% and a miserly dividend of only 1 percent in the same period.

And PYL is still paying 7.6% today and is still a steal.

All we need for our minibonds is for the company behind any one of them to just be able to continue to pay its bills. Why rely on Wall Street promises that more folks will buy the latest edition of Snow White – when all we have to do is keep an eye on Liberty’s business lines to make sure they’re positioned to make their debt payments?

Big and steady dividends beat hold and hope promises every time. And you’re far more likely to find the former in the dark and dusty corners of Wall Street’s Garage.

If you’d like to see my entire list of 13 recommended minibonds — along with my entire retirement income portfolio of rock-steady securities yielding an average of more than 7.4 percent — try out a free trial subscription to my Pay Me Strategy newsletter.

The best retirement income stocks aren’t found on Wall Street’s buy lists.

There’s a reason for this – most of the stocks that Wall Street keeps dishing out for their customers do little for shareholders while providing business for brokers.

But my “Pay Me” stocks tend to be focused on the exact opposite.

They tend not to be high-fee generating investment banking customers. And with few new issues, share buy-backs and other shareholder wealth-destroying deals, they’re generally ignored by Wall Street guys looking for the next stock to be added to their buy lists.

Even more, with the continued surge in Exchange Traded Funds (ETFs) and all of the heavy fee and trading income that comes with these structured investments – my stocks tend not to be part of those contrived investment vehicles. And as such – they don’t find themselves on buy lists.

But what each of my stocks do have in common is that they are focused on delivering the goods for investors.

And this is why they’re on my list of stocks that work together to help investors build their retirement income.

They do this in two crucial ways.

Two-Step Stress Test

To make my cut, companies have to prove that they can continue to perform for their stockholders and pass my two crucial tests.

First, they either pay their shareholders well to own them or have a proven track record of successfully reinvesting profits to actually grow their business and stock values.

Getting paid to own stocks is the foundation of The Pay Me Strategy. And when you look at the model portfolio, you’ll see that for most of our overall holdings – dividends are more than ample and have been sustained and even increased for years and years. These are the stocks I place in the Cash Cows section of our portfolio.

Cutting checks is a good sign of credibility of any company. And while it’s not a foolproof method – it works well provided the company passes my stress test to make sure that the checks will continue to come for the years to follow.

But there are a few cases in which our Pay Me stocks don’t pay huge dividends. This doesn’t mean that they won’t work to build a retirement portfolio.

In some very specific cases – companies need to reinvest some of their profits to build and advance their businesses. Those who have proven they can do so successfully become part of what I call the Long Hauler section of The Pay Me Strategy portfolio.

This works for your portfolio if the companies behind these lower dividend paying stocks are using the cash the right way to build their businesses – and deliver results in the form of sustained higher stock prices. Holding and hoping for gains in a low dividend paying stock won’t cut it for your retirement portfolio.

Now for the second crucial requirement I demand of my stocks – each one on my list has to pass my stress tests – proving that it can continue to thrive even if its income statement sees some setbacks or its balance sheet runs into threats.

On the income statement – I look at what could go wrong for revenues and expenses. And then I play the bad news through for quarters to come to see how a company will perform and how dividends will be affected. I don’t look at any Wall Street estimates – nor do I listen to industry hacks – I do my own work so as not to be persuaded or sold by anybody with an axe to grind.

If a company can pass my stress test on its income statement – then it goes through the process of proving how tough its balance sheet is.

This means that I take lower revenues and see how that plays out on debt service. Because even if revenues are fine – debt can still be a challenge even for a successful company. Banks and bond markets can run into trouble – even for good companies in good markets.

So, I look at all of the company’s debt – running from bank lines of credit, term and revolving loans to bonds and even other debt securities. I then look at the plan for rolling the debt over by asking the question – how and why will the company be able to continue to fund its debt. If there’s a doubt – there will be a problem – and the company won’t make my list of stocks for your retirement portfolio.

Continuous Checking

Once a stock makes my cut it doesn’t mean that it gets to stay on my buy list – it has to continue to prove that it’s working to build retirement wealth.

This doesn’t mean that you need to be getting in and out of stocks every month to make your portfolio pay for your retirement. In fact, I’ve held many of my stocks for years – even, in some cases, since they came to the market decades ago.

Because when I find a good stock – I buy and recommend it with the goal of owning it theoretically forever.

However, I review each and every recommendation and holding at least monthly, with the same query – would I buy it all over again and why?

This discipline forces me to start over every month – and in the process helps me avoid one of the worst investing mistakes of all – the “hold and hope” strategy. This is a killer for too many investors.

Either they’ve bought a stock that’s just sagged and are hoping that something happens to enable them to break even – or they’ve done so well that they can’t bring themselves to sell at profit – hoping that something miraculous happens to make the stock resume going up.

But there are plenty of stocks that – month after month and year after year – deliver consistent results that merit continuing to buy and own them.

At their core, companies behind such stocks tend to have the same characteristics.

First, they’re proving over and over again to be focused on shareholders. Providing reliable information to investors and watching costs, while doing their job to bolster business and paying big and ample cuts of the profits in the form of dividends.

Second, they consistently perform those same tasks over and over again. And they not only do it better than their industry peers – but better than alternatives across other markets and even other nations.

One Stock to Buy – And One to Sell

OK – let’s get to a specific stock in the electronics technology industry that fits into our Pay Me Strategy. In this example, I’ll show you a proven stock price performer that beats a Wall Street darling hands down. The Street’s favorite might have more cheerleaders – but won’t score any points for your retirement.

Buy Samsung, Sell Sony

Sony (SNE) has been the go-to company for consumers and investors for decades. Once the industry leader for innovation and quality it’s clearly lost its way over the past decade.

Instead, a new leader has emerged from the rival market of Korea – Samsung Electronics (SSNLF).

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From aggressive moves to cut costs and push production – to cashing in on massive leaps in technological developments – Samsung has continued to trounce Sony. It’s gotten so bad for Sony, that the Japanese company has actually thrown in the towel on a collection of products and components – contracting with Samsung directly to buy and re-badge products with Sony on the outside – but Samsung quality on the inside.

Yet despite the differences in sales gains for the companies – Samsung keeps soaring at annual rates in the 20-30 percent range vs Sony’s losses running annually at over 20 percent – Wall Street keeps pushing Sony stock with not a single sell recommendation.

But while Sony stock keeps finding fans on the street – the market knows better. And this is why I’ve continued to buy the real winner – Samsung – with its gains for the past decade of over 286 percent, versus Wall Street’s darling – Sony – with its losses of over 69 percent.

Want more? I’ve created a free special report on my top ten retirement income stocks — along with their ten Wall Street counterparts to sell immediately. You can get it when you sign up for a free trial membership to my Pay Me Strategy service.

Why wait for the next crisis to hit the major markets when you can move on to the best-performing markets of the future now?

by Neil George

The past month has seen major markets do yet another round of the slip and slide. In the US, the Dow Jones has given up another 1 percent – while in Europe, the latest rounds of credit disasters have driven the leading stocks from London to Paris and Frankfurt down more than 8 percent. And in Japan – the home of the multi-decade long recession – the markets are barely (at least for the moment) in the black.

And yet, the usual talking heads of Wall Street – the wannabe brain trust of the nation’s retired investors – keeps spooling out the same tired advice: Stick with the major markets. But they have an ulterior motive: To keep their own paychecks coming, they need your dollars to keep flowing to the big markets.

Then there are the doom-and-gloomers seeking their 15-minutes of fame with predictions of US dollar demise.

These guys keep selling the concept of getting out of the US and the dollar. But look what’s happened to their favorite places for your retirement cash: The euro is down against the dollar by nearly 12 percent; the British pound is down nearly 9 percent and that stalwart of the doom and gloom set – the Swiss Franc – has done nothing against the US dollar.

None of this fazes the dollar-haters – as they just keep pointing out the troubles of the US while ignoring the same exact woes of the rest of the world’s major economies and markets.

But what if you could get beyond both the usual suspects of Wall Street and the alternative doom and gloomers? You might just then actually manage to make and keep a few more bucks for your own retirement.

Emerging Wisdom

The key to making your own portfolio pay for your retirement is to focus on stocks that not only pay you to own them – but stocks in markets that aren’t facing the next round of credit or other crises. And if you can get those stocks in markets with currencies that are rising against the dollar, euro, pound and yen – it will make those dividends and gains even richer.

To do this you need to embrace what Wall Street keeps telling you is risky – emerging markets.

They’re called emerging for one reason – they’re making the right moves to grow their economies – and their stock markets and currencies reflect the progress.

Look at it this way – how many so-called AAA-rated economies have been slammed over the past few years? In Europe there are a collection of former AAA countries such as Ireland – which is now A and who knows how low it could go without its next bailout? And even in Japan, the debt of ages is now sending its ratings down into the lower end of AA – who knows where it might end up?

Think about it – AAA-rated markets can only fall from grace. So why not invest in up-and-coming markets whose ratings are on the rise?

In Asia, countries such as Thailand are climbing – with ratings going from BA to the high-end of BAA.

Or how about Singapore? It took years and years of hard work – but it pays to watch how you tax, borrow and spend. Singapore went from AA to AAA in just a few years.

In the Americas, there are several countries that continue to be keenly focused on the goal of becoming the next major market. Brazil is the poster child for the cause, and with the recent elections rewarding the right leadership – the nation has gone from a basketcase with a single-B rating to BAA – with the next step in the A-ratings.

In Europe and just beyond to the east – while their peers inside the European Union look down their noses – markets such as Turkey and Israel are picking up their ratings. Turkey has been moving from the lowest of B-ratings into the BA range and Israel keeps moving up the A range – while the leaders of the EU are heading south, crushed by their loss of focus.

Profits Not Panderings

Markets reveal what is real rather than just assumed. And this is why the emerging markets are delivering – while the majors do their slip and slide.

In Asia, the up and comers of Thailand and Singapore are performing – with local market stock indexes up so far this year alone by over 16 percent for Singapore stocks and nearly 50 percent for the Thai stocks.

In the Americas – Brazil is up a bit, while in the fringe of Europe – Israel is up over 16 percent and the Turks are up over 25 percent.

Then there’s the currency factor. If you can get the right stocks in the right markets – you can make even more. For markets that are on the upswing – the currencies track their progress.

Way back when I was a currency trader – I used to work with corporations and investors to try to go beyond guessing and get a true handle on currency directions.

I came up with a fundamental model for valuing a currency just as if it was the “stock” of the country. The better the fundamentals of a market – the higher the value of the currency denominating all of the market.

Better fundamentals result in better currencies. So while the US dollar, European Union euro, British pound and other majors reflect the underlying woes of their markets – the currencies of the up and comers are moving higher.

In Asia just this year alone, Thailand’s baht is up almost 10 percent while Singapore’s dollar is up a bit less at a 5 percent gain.

Down in South America – Brazil’s real continues its rally against the majors despite some efforts to stem its long-term upward run.

And on the outskirts of Europe – the Turkish lira and Israeli shekel are both climbers so far this year with gains against the dollar of 3 percent each and nearly 17 percent or more against the euro.

Better Markets, Better Returns

In my Pay Me Strategy – I focus on stocks that will grow your retirement wealth during good times and bad. And one of the crucial means of making this happen is to adhere to a few major tenets when it comes to picking stocks for your own retirement portfolio.

This includes focusing on stocks offering solid, high-paying dividends. And if they can be found in rising markets with rising currencies – so much the better for the long haul.

There are plenty of quality, high-paying dividend stocks in the world’s best up and coming emerging markets. The key is not to just throw a dart at a good market – you can get if your dart picked the wrong stock.

Nor should you allow yourself to get stuck with a broad index play in an ETF (exchange traded fund) – as you might wind up taking losses if the ETF doesn’t track the right collection of the right stocks.

The answer is to pick stocks that are in sustainable industries and then put them through our Pay Me Strategy stress tests. Stress test number one is to focus on a company’s income statement and look at what happens when the worst hits its market. If the cash keeps coming to service its dividends – then it’s passed the first test.

Second, focus on the balance sheet. This is where you look at the debt and what needs to happen to keep that debt serviced and rolled over. The interesting thing about many stocks in emerging markets is that they tend to have less debt than their peers in the so-called major markets.

You’ll find a wide variety of stress-tested stocks in my Pay Me Strategy – including a whole new series in some of my favorite emerging markets such as Thailand, Singapore, Brazil, Turkey, Israel and others. And what links each of the newest of my vetted stocks is that they’re not only appreciating in price – but they’re high-paying as well.

And they’re not hard to buy. In fact, each and every one of them can be bought and owned in any US brokerage account – including retirement accounts from IRA’s to SEP and even many 401k and other qualified retirement accounts. And some even trade right on the New York Stock Exchange (NYSE).

Want an example? How about in Brazil – where one of the nation’s major power utilities keeps pumping out the cash.

CPFL Energia is based in the financial capital city of San Paulo and trades on the NYSE under the symbol CPL. It pays a dividend of over 8 percent – which has been climbing by over 27 percent over the past five years alone.

And for those same past five years – just as markets in the US, Europe and Japan have imploded – CPFL Energia has delivered returns each and every year averaging over 27 percent.

Rising cashflows, fat and rising margins and low debt to assets all work to make this company’s stock make the cut. And why this is yet another in The Pay Me Strategy’s collection of stocks that foregoes Wall Street hype – and instead keeps working to pay for plenty of investors’ retirements.

To get the names of my other high-paying, stress-tested emerging market stocks – along with the rest of The Pay Me Strategy’s recommended list – click here to get a 30-day free trial subscription.

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Now that the election celebration and commiseration parties are over – you need to keep your portfolio profitable regardless of any new direction government takes.

by Neil George

The seemingly never-ending election season provides a prime time soapbox for both stock pitchmen and market curmudgeons alike to blather on about how to either cash in or sidestep another slide.

Despite the billions of dollars spent campaigning, complete with incessant advertisements and massive protest marches – now that the final tallies are taken – how much will really change come January?

We’ll still have a US economy with steadier to stronger growth – now running at 2.0%. We still have plenty of government deficits and debt. And we’ll still have plenty of uncertainty as to what Washington will do next.

Those pitching a massive change will likely be disappointed – but so will those who warn that it’s all just for naught.

The key goal of my Pay Me Strategy is to empower you to make your portfolio actually make money regardless of the multiple possibilities arising from events like over-hyped elections – instead focusing on the more likely of outcomes.

Then look at the investments that will make the most of the probable and not just the possible.

By just about anyone’s account on either side of the political aisle come January – there will be a change hitting Capitol Hill as well as in statehouses around the nation. That change will come in the form of a reversal of fortune for the incumbent party’s control over government.

But the change won’t be overwhelming – and thus neither will the results for investors wishing to place bets on story stocks.

It will most likely end up merely locking down further political action through the next two years until yet another general election.

Elections Have Consequences for Investors

While historical look-backs are rife with correlation issues – if we do take a look at the mid-term elections of 1994 and 2006 when incumbent parties gave up some power in Congress – there is some comfort for those seeking market improvements in 2010-2011.

In November 1994, after an anemic performance of the S&P 500, including a price loss and a meager 2 plus percent total return over the prior 12 months – after the changeup from Democratic control to Republican in Congress and with continuing Democratic control of the White House – the S&P 500 surged some 28 percent.

And for the same period of time – US intermediate Treasuries went from a loss of nearly 7 percent, to gains of over 20 percent.

Then in November of 2006, with the shift from incumbent party control to the opposition – the S&P 500 continued to perform from the prior 12 months, with post electoral gains of over 12 percent. Treasuries fared similarly, going from a positive performance of nearly 5 percent to nearly 7 percent in the 12 months after the election.

So as the polls suggest, the following 12 months post the election might well continue to support generally higher stock and bond markets. And the reasons might upset folks on both sides of the political aisle – any improvement might well be explained not by better policy – but rather just a lockup of government that lends a hand to the markets.

But, should you just hold and hope that history repeats itself? Or – given plenty of other issues remaining in the economy and market – wouldn’t it be a much safer bet to focus on the ongoing developments beyond just the post electoral marketscape?

Let’s look at a series of continuing developments that likely won’t change despite the election results.

First, taxes are a certainty of course, and continue to be part of the investment gauntlet. While many might hope that hikes in Federal tax rates for income, qualified dividends and capital gains will be nixed – don’t completely rely on it.

It’s hard not to see at least some compromise on tax rates given both political parties’ rhetoric over fiscal needs and wants. And even if we do get lucky and sidestep any Federal tax hikes, there’s still plenty of damage coming from the state and local level.

And as I’ve been writing in both By George and The Pay Me Strategy – tax receipts for state and local authorities are strongly on the rise. In fact, just in 2010, 29 states have hiked tax rates – amounting to more than 24 billion dollars. And nationwide – with states’ budget gap estimated to be running at over 136 billion dollars – increased taxes and fees are almost a bankable certainty.

Add in the public pension deficits on the state and local level, which according to two recent studies by professors at the University of Rochester and Northwestern University are running at more than 5.3 trillion dollars – and along with the reality of death – higher taxes are looking like a done deal.

So let’s talk about some prudent and profitable trades that will not only perform along with an expected post-electoral stock and bond boost – but will also counter higher taxes.

Income Investments That Sail Past Higher Taxes

Start with muni bonds. Yes, muni bonds – but not to buy willy-nilly. Rather, focus on three closed-end investment funds that I’ve recommended throughout the past several years that continue to sidestep so-called insured munis in favor of known quality bonds.

Buy the AllianceBernstein National (AFB), Blackrock Muni II (BLE) and the Nuveen Quality (NQU) funds. Each are trading around book value or at small discount or premium for their assets and management. And like the closed-end global bond funds inside The Pay Me Strategy – these should be bought together as a group.

The average tax-free yield for the group is running near 6.5 percent – which, grossed up for most investors, equates to a taxable equivalent of nearly 10 percent. And during the past 5 years of turmoil – they’ve managed to deliver an average return of 35 percent.

Any rising taxes will only strengthen issuers, while also goosing demand for quality tax-free bonds.

Then, move on to tax-advantaged stocks – many of which have continued to perform inside my Pay Me Strategy for many years.

Passthrough securities come in various flavors and acronyms including Master Limited Partnerships (MLPs), Limited Partnerships (LPs), General Partnerships (GPs), Limited Liability Companies (LLCs) and other structures.

But what they all have in common is that they avoid double taxation of dividends. All profits are paid out and thus passed through to shareholders – who then are liable for taxes.

In addition to the profits passed through are many of the writedowns – including depreciation costs – which are referred to as return of capital. This means that for just about all passthroughs – the dividends are sheltered either fully or in part when it comes to investors’ tax liabilities.

The market for these stocks has continued to crush the general S&P. During the past 5 years, the Alerian MLP Index is up nearly 100 percent – while the S&P has lost another 1 plus percent in price.

There are a growing collection of ETFs and funds beginning to take notice of various sectors within this group. But they tend to underperform the group – even those supposedly tracking the index. This is yet another reason why I tend to side-step ETFs for most market opportunities other than for near term trading strategies.

But that doesn’t mean that there aren’t some easy individual passthroughs to buy to help pay for your retirement.

I’ll mention three that not only perform – but outgun the index and every passthrough ETF while also paying well enough to deliver high returns with or without probable higher tax rates.

On the petrol side – there’s a producer and a distributor. Linn Energy (LINE) is a quality liability-averse passthrough paying over 7.5 percent. It focuses on established fields in the south-central US as well as in Southern California. Its return since coming to the market in 2006 is more than 130 percent.

Then on the less price-sensitive distribution market is Enterprise Products (EPD). This is a pipe and processing partnership paying a bit less with a dividend yield in the mid-5 percent range – but performs with a five year return again in the 130 percent range.

One newer passthrough to buy is a dry-bulk shipping company focusing on high-contract demand routes in the Pacific. Navios Maritime (NMM) pays nearly 9 percent and, since coming to the market in late 2007, has delivered a return in excess of 40 percent.

Boost Your Own Retirement Income with Pension Managers

The next group on my list of post-election investments involves pensions. As noted above, public sector pensions on the state and local level are huge – and hugely underfunded. Add in the Federal retirement system, including the Federal Thrift Savings program, and the market for managing retirement pension assets is gargantuan and only getting bigger.

The way to cash in on this is to go for the companies running the pension assets.

The key with this market segment is that the companies managing the pensions don’t have to perform – only continue to hold and gather assets. The more the assets – the more the fee income.

One of the biggest public pension managers is Blackrock (BLK) which runs the core of the Federal Thrift program’s funds. Assets under management have continued to soar by more than 800 percent – and BLK should only keep growing as pension funds begin to address lagging contributions.

Then there’s another successful manager – Pimco, which is owned by the German financial giant Allianz (AZ). While the company also has a host of insurance business lines – Pimco continues to pull-in ever higher amounts of pension assets. This is primarily due to the tidal shift in public and private pension funds away from stocks and back to bonds as the core of their assets.

Pimco being one of the largest bond managers should continue to pump up Allianz in the coming year. And a general positive post-electoral market won’t hurt either. Buy Both Blackrock and Allianz.

Profit from Renewed Offshore Drilling

A third and last post-electoral development worth buying into is offshore drilling.

With the exception of Florida, most of the the nation – regardless of political party – is demanding more petrol production and that means resuming offshore drilling. As a result, what will be happening post election is a new series of Federal regulations focused on at least appearing to try to avoid another disaster.

One of the best drill rig contractors that’s used to working in hostile waters – both political and natural – is Seadrill (SDRL). With management focused on liability management – it has an admirable track record of drilling and budget safety. And not only does it satisfy the politicos – it also more than satisfies shareholders. Its dividends are solid and heavy – climbing strongly to a current rate of over 8 percent.

And the market is beginning to notice as SDRL’s shares are performing much like its rigs – with gains over the past year of more than 50 percent. Buy SDRL for yield and gains.

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by Neil George

Remember when all folks had to do to pay for their retirement was to simply go along with the working crowd and their pension and social security would take care of them?

Pensions were the norm. If you showed up on time, kept your head down and did a reasonable job – after so many years you’d get the gold watch and regular checks would start showing up every so many weeks.

Those pensions protected against inflation, stock market gyrations and pretty much everything else. And to make them even better, many pension payouts were based on a worker’s highest-salaried years.

Sweet.

And on top of the pensions, there was social security – whereby Uncle Sam would give back a portion of your taxes paid over all of those years of working.

Any saving and investing that folks did was simply gravy for their retirements.

This plan worked well. From the private sector world of corporations, to the public sector of government, workers were pretty much set when it came to retirement planning.

Stock market calamities? Not really an issue, as pensions were set and supposedly watched over by State and Federal regulators. And remember – traditional pensions provided defined benefits, not defined contributions. This meant that payouts were locked in – eliminating the worry of making the correct retirement investments.

Times changed, of course – and yet too many folks still aren’t willing to recognize that retirement planning isn’t an option, but a requirement – that is, if you don’t want to have to keep working until you keel over.

Retirement Dreams Became Nightmares

In the private sector there’ve been some serious wake-up calls to workers’ retirement dreams. To begin with, some companies that were supposed to be funding retirement pension plans weren’t really going along with the rules.

Even worse: According to the Financial Accounting Standards Board (FASB), pensions don’t even need to be based on real world market conditions.

FASB allows companies to use estimates rather than actual investment performance when accounting for the amount of assets needed to be held in their funds. The idea behind this is that in any quarter, the markets might create big swings – either positive or negative – that would cause either over- or under-funded conditions that would cause issues in the short haul for companies.

So, FASB allows companies to use assumptions for performance. The assumptions are based on the view that the markets generate long-term average returns of 8 percent. Yep, 8 percent is assumed to be a good number – despite all evidence to the contrary.

And while some at FASB have brought up the fact that the S&P hasn’t generated anything close to that number for more than a decade – it’s all been kept quiet so as not to upset corporate earnings. Congress has even stepped in to stop FASB from changing the assumed rates, thanks to the power of the lobbyist class in Washington.

It gets worse. While FASB lets companies inflate pension asset values – it also allows liabilities to be minimized. Just two years ago, the discount rate for future payments was changed from the Treasury market rates to corporate bond average rates. This means that the lump-sum current value estimates to fund payouts are now significantly reduced well below long-term traditional amounts.

The impact of both of these components of FASB’s pension accounting rules is to overstate assets and understate liabilities.

No wonder then, as many corporations went under during the past several years, that another government entity – the Pension Benefit Guaranty Corporation (PBGC) – has faced major payout issues from under-funded pensions.

And for those who were rudely awakened to a defaulted pension – the waking nightmare is a dramatic drop off in pension payments. The PBGC pays out only a small portion of the originally promised amounts from dead pension plans.

Public Sector Retirement Plans at Risk

Pension plan troubles get even stickier when it comes to the public sector.

Right now there are countless cities and counties and states around the union with pension plans that – even by the loosy-goosy FASB standards – aren’t even close to being funded.

In some states, such as California, just paying current pensions takes up the majority of the budget.

And in several other states, underfunded liabilities amount to as much as a trillion dollars.

This is all well before anybody starts to look at social security’s pay-as-you-go gap. It’s no longer just looming – recently it’s become a reality in select quarters of the US Federal Budget.

The solution isn’t pretty. In the private sector – companies have been switching away from defined benefit to defined contribution pensions. This means that companies offer workers the ability to set aside cash each payday into qualified retirement accounts such as 401ks – contributions which the companies may or may not choose to match.

This same practice is being considered for the government sector – but not without a whole lot of screaming. And one thing politicos hate is screaming – especially around election season.

But in reality, this is the only way to go. And for anyone who’s working towards retirement – another reason not to put your trust in any company or the government when it comes to your future.

4 Steps to a Prosperous, Secure Retirement

For many, it’s not pleasant waking up to the fact that funding retirement is their own responsibility. But rather than screaming about it – just accept that you’re going to have to work harder to make your retirement work.

Even if you do have one of those old-time pensions – as noted above – don’t take your payments for granted.

Take a look at your retirement accounts. Look at your 401k, or equivalent plans such as 403bs, SEPs and any IRA accounts. Add up what you have and then look at how much cash is being generated each month by the investments.

Then do the even scarier work. Take out your checkbook and do a rundown on the checks you cut every month. Add them up and then match it up with what your retirement accounts are generating.

For many – the numbers won’t match. If the monthly returns from your retirement accounts are more than you’re spending, congratulations. More likely – the checkbook is spending a lot more than the retirement account is generating.

Don’t panic. You’re not alone.

The way to make income and expenses match is to do what the government doesn’t like to talk about. Spend less right now and save and invest more. Perhaps not good for stimulating an economy that’s based on “shop ‘til you drop” – but a whole lot better for stimulating your own retirement.

Then go to work on what you’re actually investing in your retirement accounts. This is where my Pay Me Strategy comes in. For years and years I’ve been writing and providing my recommendations of stocks, funds and other investments that focus on the core need from any retirement investment – that they pay and pay well.

From dividends to coupon payments – along with some gradual growth to offset inflation – the key for making your investments actually pay for your retirement is to make sure that you aren’t just holding the usual stocks of the S&P and hoping that they’ll appreciate. Instead, make sure that as you go down the list of your investments that they are piling up cash – not just promises.

Take a look at a typical example from my Pay Me Strategy – an oil drilling company that takes the same approach to business that we all should take for our retirements – looking at both its assets and its liabilities. Even better, it’s so focused on both – that often the liabilities tend to get more focus.

The result is solid and steady performances with fewer mistakes – something that’s now getting noticed, as its peers have gotten more than their wrists slapped for ignoring threats.

The company is Seadrill. Out of Norway – the company trades on the NYSE under the symbol SDRL.

Now if you look at the chart, you’ll see big gains of 30 plus percent over the past couple of months or so. That’s fine – but not why I’ve been recommending SDRL for a while now.

Instead, look at the income statement. That’s where you’ll see the structure of a company that knows how to get paid – and in turn pay out a great dividend to shareholders. Right now, even with the big share price gains, it’s yielding 8 percent.

But even more important – look at the balance sheet. Yep, you’ll see a lot of cash and not a lot of debt. Remember – it’s all about liability management.

And there are plenty more companies and other investments just like this one that you need to own. All it takes is the wake up call that no one is going to give you a retirement – you need to build it yourself.

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by Neil George

Wall Street doesn’t want you to own bonds.

In fact, they hate the whole idea of bonds – especially for individual investors who are trying to pay for their retirements.

Bonds, of course, force companies to actually pay investors – and pay them on a regular schedule. Unlike stocks, where dividends can be sliced, diced, and even discontinued – bonds are genuine legally binding contracts – meaning comfy, overpaid CEOs actually have to send checks first to bond investors.

The guys in the executive suites – along with their pals in the investment banks and brokerages – would much rather try to convince retirement investors to just trust them – and so they keep trying to foist dividends from common stocks onto the public.

The charades keep coming every quarter – companies and analysts keep touting earnings and “huge” dividend increases – sometimes amounting to 10 percent boosts in dividend yields.

That’s what gets the headlines – but let’s read the fine print of just how much 10 percent means in real money.

Even with all of the discussions by the talking heads on CNBC about soaring dividends – the average rate for the 500 leading stocks that make up the usual suspects of the S&P 500 index is a miserly 1.99 percent yield.

You can’t live on 1.99 percent – nor can you build a retirement portfolio when you’re only getting a dividend yield of 1.99 percent. And even if every company on the S&P 500 were to boost its dividend by 10 percent – that would still mean that the effective yield would be only 2.19 percent.

As more and more investors wake up from their Wall Street-induced trance – seeing that the general stock market hasn’t and won’t work for their retirement – it’s the bond market that’s been getting their attention.

And Wall Street wants to shut this down – quickly.

But they don’t have much to work with. After all, the S&P 500 is down some 23 percent for the past decade – not something that proves their point to trust stocks. Meanwhile, even the most boring part of the bond market – US governments – are up just a tick shy of 100 percent for the same decade.

So, Wall Street and the guys in the executive suites have created a new playbook to con investors to ditch the success of bonds and come back to stocks.

Wall Street’s Phony Retirement Plan

The plan? Try to convince investors that the bond market is in a bubble that’s about to pop. Then, resume suckering the unwary into buying stocks again.

But there are a collection of problems with Wall Street’s plan – and following it won’t do anything but kill your chances for a successful retirement.

First up, if bonds really are going to head south as Wall Street claims – then interest rates will be heading north – not pretty for businesses. And if interest rates indeed start to rise in earnest – don’t even think that stocks can survive.

But the chances of higher rates are pretty low – especially as inflation is far from rearing its head.

In fact, as we’ve seen, headline US consumer inflation is only running at around 1.1 percent annually – with core inflation running even lower at 0.9 percent.

And on the wholesale level – PPI is running at a core rate of 1.3 percent.

Of course – the next part of the plan is to tell us that low inflation is bad for the economy.

Right.

It’s why we also keep getting the ridiculous pitches that so-called deflation is ready to ravage the US economy. Deflation? Impossible – especially given the continued surge in monetary and credit market conditions.

You just can’t get true deflation with a positive growth in the GDP and a continued surge in money and credit supplies.

Dis-inflation – yes. We can see prices falling where they need to fall based on true market conditions – in sectors such as housing, technology and other markets – including lower value-added labor.

Next, the pitch for a bond bubble moves on to try to tell us that since bonds have rallied so much, they can’t sustain their current prices.

Sure, US government bonds are indeed not just fully priced – but overpriced. That’s why I do not even remotely suggest buying Treasuries – nor have I ever recommended them as part of any core retirement investing plan – especially not in my Pay Me Strategy.

Instead, I continue to recommend and own myself a collection of bonds that not only have performed in the past – but will keep paying you to own them year after year – regardless of what happens with the US government and Wall Street’s whining about bonds trumping stocks.

Wall Street Sells Stocks – While Buying Bonds

Ironically, the same Wall Street guys that are pooh-poohing bonds are the biggest buyers, traders and owners of these same bonds.

Look at the major holders of any corporate or international government bonds – you’ll see the big names of Wall Street. From the big investment banks…to masters of the universe traders…to hedge fund giants – these guys live off of the bond market – even as they tell you to avoid them.

And while they make it hard for individual investors to play in their sandbox of the bond market – inside The Pay Me Strategy I keep showing you how to buy and profit from the very best bonds.

Like my favorite collection of global bonds from countries actually performing – including China, Brazil, Indonesia and plenty of others. An example is my closed-end investment company – the AllianceBernstein Global High Yield Fund ( AWF).

It owns the same great performing bonds as the big guys – but is easy for individual investors like you and me to buy.

It pays over 8.2 percent and has generated a return of more than 344 percent during the past decade (including the inflation years in the middle). Yes – that number is right.

And before you think that it’s too pricey now to buy – nonsense. Despite the stellar performance, it still trades at a discount to its book value of more than 2 percent.

Or how about my series of top performing minibonds? These are real corporate bonds that trade on the New York Stock Exchange just like a stock – only in my favorite part of the market, the less touted “garage” of the NYSE annex.

Here’s a great example I just did a quick review of for my upcoming issue of The Pay Me Strategy – Liberty Media. The company is one of the big drivers of online content and retail around the globe.

I’ve been recommending one of Liberty’s minibonds since back in the depths of the markets in early 2009. And since then – this bond has performed with a return to date of over 245 percent. Yes – that number is right.

And it’s still a great buy – priced at a 12 percent discount to its face value and still paying over 7.5 percent!

Some bubble.

The only bubble in bonds is the one that’s popping Wall Street paychecks – as more and more retirement investors ditch the usual suspect stocks and instead demand to get paid.

If you’d like to get the ticker symbol for the Liberty Media minibond I’ve discussed – as well as all of the details on 28 additional safe retirement securities yielding an average 7.7 percent – click here to try out my Pay Me Strategy for 30 days FREE.