100-Year Bonds: Retirement Winners for Us Tortoises

by Marc Bastow | February 15, 2013 12:15 pm

I was advised today that my investment style is  — putting it nicely — “slow and steady wins the race, dude.”

I take that as a compliment, particularly when it comes to bond investments in retirement portfolios. The recent “sky-is-falling” bond mentality[1] leaves me somewhat cold, although I acknowledge that the price gains bonds have posted over the past five years certainly can’t last forever.

But for those of us tortoises who typically hold bonds until maturity (or an early call date), price fluctuations are interesting but not earth-shattering. And I’ve actually been thinking of another way to play the “boredom” game while helping out my heirs: very-long-term bonds. And by that, I mean 50 to 100 years.

It’s not as crazy as it seems. These bonds have been around for, well, a long time[2]. And really, what better way to ensure a steady stream of high-quality (more on that in a minute) income for me, and long after I’m gone, my children or grandchildren?

If you plan to buy and hold Walt Disney (NYSE:DIS[3]) stock in perpetuity, why not glom on to Disney’s 7.55% Coupon 2093 Maturity long-term note? The price of this offer is now well above par (the $100 mark), but its 3.56% yield to maturity is a nice return, fully 2 percentage points better than Disney’s current dividend yield.

Similarly, JPMorgan (NYSE:JPM[4]) offers a 6.95% Coupon 2066 maturity note, this one trading right at par. Yield? That same 6.95%, or roughly 4.5 percentage points better than the stock’s dividend yield.

Of course, you can play the same game with dividends, since buying Disney and JPM and Exxon Mobil (NYSE:XOM[5]) and Johnson & Johnson (NYSE:JNJ[6]) should also give you and your heirs dividend payments into perpetuity. But chances are those stocks will be sold long before before those ultralong bonds mature.

Now for that part about high quality.

Admittedly, none of us has any idea what’s going to happen next week, never mind in 50 or 100 years. Credit quality still matters, so picking bonds from the best of the best players still makes sense. Of course, if it all goes to hell in a handbasket in 50 years, chances are you’ll never know.

The idea is that to find companies you believe will be around for the next 50 years because they’ve already been around for a long time. Investing in the longest-term bonds they issue is one way to put regular cash payouts into your pocket without having to worry much about the foreseeable future, and far beyond.

Think about it. Someday, your great-grandchild will get a notice that the bond you bought in 2013 has reached maturity. What a nice little windfall!

To me, that’s the ultimate win for a tortoise.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long JNJ and XOM.

  1. “sky-is-falling” bond mentality: https://investorplace.com/2013/01/bonds-for-retirement-ibm-ko-msft-xom-pg-jnj/
  2. a long time: http://www.investopedia.com/ask/answers/06/100yearbond.asp#axzz2KtTuMdb1
  3. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  4. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  5. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  6. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ

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