Conference nyoss1::market_investing

    re: .0
    
    No offense to you or your investor. But, I think you are asking for the
    moon. In today's economic climate, safety, stability, liquidity and
    high returns just don't come together. In my opinion, if you want the
    first three, then try to settle for 3-4% returns. If you want at least
    10% returns, then you can not have the first three. If anyone have a
    way to get all four of them. I'd like to find out for myself, too.
    
    Mike

RE: 373.0 by BUSY::CLEMENT "Smells like Nirvana"

> I need recommendations for a safe and secure investment that would preserve
> the investment principal and pay close to 10% or more in interest.  

> She would also need access to the principal for emergencies, but could
> probably let the principal be tied up for as long as one year.

Probably the investment that comes closest to the requirements other than yield
is US Savings Bonds.  They pay 4-6%,  and have a tax advantage as well.  The 
tax advantage is that income taxes can be deferred until the bond is cashed.  
On a bond held for years this would boost effective yield as it compounds tax
deferred.

There is no way to get 10% without taking significant risk.


Phil

Re : .2

US Saving Bonds would not meet the need here as the investor needs the interest
paid monthly to meet living needs. Also, unless the bonds are held for at least
5 years then the interest is not guaranteed. If he need the principal before
maturity the he may have to settle for the lower interest rate.

RE: 373.3 by HDLITE::HORTON "Ken Horton, KA1GFN"

> US Saving Bonds would not meet the need here as the investor needs the 
> interest paid monthly to meet living needs. 

So the investor cashes a bond a month.  


> Also, unless the bonds are held for at least 5 years then the interest is 
> not guaranteed. 

If the bonds are held long enough,  a higher market rate is paid.


Phil

    
    	Regardless of the mechanics of the bonds, they won't work since the
    base noter's friend is looking for 10% return.  Savings Bonds won't
    come near 10% unless inflation really takes off -- at which point the
    base noter's friend probably needs more than a 10% rate of return.
    
    							-craig

Actually, she probably needs *less* than 10% and just doesn't realize it.  
If she was really holding CD's paying 10%, she probably purchased them when 
inflation was 8-9%.  These days, although the yield on 'safe' investments 
looks pretty pitiful, the effective yield, after inflation, is as good as it's 
ever been.  So you can look at it two ways -- either she should take 5-6% and 
stay slightly ahead of inflation now, or she was not doing well enough to get 
10% in days of higher inflation and she should consider taking more risks to 
try to get that yield now.

As usual, just my $.02

Mark

    I can think of two vehicles which are relatively conservative, but
    still are "stocks" with some risk. These suggestions do not fit the
    "as stated" criteria of the base noter. I'm listing these as sometimes
    the criteria are "overstated" and some amount ventured in these types
    of investments is justifiable. One definitely should not place too
    large a percent of principal in any single issue of these vehicles.
    
    
    I. Look for a perpetual prefered stock (NYSE). 
    
    For example, Transamerica corporation (symbol TA) has a common, but
    also a prefered issue. The prefered pays $2.12 and is priced about
    25.75 now. I have not looked up the particulars of this prefered issue.
    It just happens to list out near a stock I have watched for years and I kind
    of follow this too. So at $25 you are getting 8.48 yield (not counting
    commission to buy). 
    
    Another example is the prefered stocks of the Barclay's bank on the
    NYSE. These yield 10-11%. But many might argue about these being ADRs
    of another country's stock. These vary in the 25-29 dollar range over
    several years.
    
    
    (Beware, there are different types of prefereds- one of which is "perpetual"
    which term is used to mean that it pays quarterly dividends and is not
    subject to fluctuation in the dividend (which may
    meet your needs if you can fund the first 3 months worth). Anyhow, the
    TA prefered does fluctuate somewhat -- in last few years in range of
    22-26. The dividend is steady. So if you had caught it at 22, you would
    have had 10%. Right now it is 8+ %.
    
    (There are many perpetual prefereds with 10%+ yields. The higher yield
    implies greater risk.) 
    
    II. Consider a closed end bond fund.
    
    I am claiming that you can get "advice" from large brokerages which
    assert that some of these investments are suitably safe for the
    "retiree" or widowed investor. That is to say, they will sometimes
    recommend one which in their opinion  is relatively "safe".              
    
    
     For example Putnam company offers  many listed on the NYSE. 
     I have been in Putnam Premier Income Trust
     for 5 years. It used to pay as much as 1.02 (when stock was trading
     around $10. Now it is trading in 7 7/8 to 8 3/8 range and pays only
     .75 per year. BUT THESE FUNDS PAY MONTHLY. These also vary in price
     this one hit as low as low 6's a few years ago with yield then at
     close to 15% ! Too bad I missed buying in then.) This particular
     issue was recommended to my mother by Smith Barney as a conservative
     high yielding investment.
    
    So what is the result after 5 years ?  The fund value is off 17.5% from
    original investment, but I bought more at 8. It sure beats CDs, but the 
    yield is slowly eroding down. That is based on interest rates. 
    When the cycle reverts back up, I expect the yield to
    be increased. (No experience seeing that in 5 years however).  But we
    are still collecting 7.5% on the original stock bought for 10 and
    higher yields on the rest. Most of the time the yield was closer to
    10%. 
    
    
    III) Consider carefully selected Limited Partnership.
    
    Many of these pay out around 10%. Now there are lots of nervous
    reactions to these "partially" tax sheltered investments. But if you
    choose one with reasonable expectation of continued cash flow you
    should be able to collect the returns for many years. (not all of these
    investments are "rigged" to stick it to the limited partners. Consider
    Burger King Investments on the NYSE. I bought this a little over a year
    ago at 11 (paying 1.56 per year) now priced around 14.25. I'm
    collecting 14% in a child's college account. Can I afford to give back
    say 25% of principal after 6 years if I have to ? You betcha. Can I
    come out ahead ? Well, I'm sitting on a 33% paper profit now. When
    interest rates rise again, this profit may erode. But since I bought
    this one "just right" I will probably at worst just collect my 14% per
    year and net out with no gain on the stock).
    

    Summary:
    
    These types of investments are viable if 
    a) you believe that you are investing primarily for the income and 
       therefore don't mind some non-trivial fluctuations in principal value 
       over time,
    b) someone trusted is there to watch the value of the investment. 
    c) there will be no absolute need to sell out on the spur of the moment 
       (ie, if can defer a sale for say 6 months to a year you shouldn't
        have to worry about losing much principal.)
    
    If you collect a healthy return for 5 years at 10%, and lose 15% in
    principal when sell, you more or less collected 7% per year. This is
    not disastrous. If timing works out you don't lose the 15% when you
    want to sell. For that matter, you may have a gain in principal when
    you sell.  Most folks will not venture any risk at all and have to
    settle for limited returns over many years. I think if you anticipate
    "enough" years with a higher return, the element of potential loss of
    principal is warranted.
    
    
    
    I'm sure the really conservative folks will jump all over this approach
    because you can get caught in an extended "dry spell". However, for
    someone with enough principal who really is looking to preserve it so it
    can be inherited (just so long as the income is essentially steady)
    buying into such a situation can pay off. 
    
    

    Also consider a Utility Fund.  These are not as volatile as most stock
    funds and pay better than CDs.  Many will send you a monthly income
    check.  Franklin is a good one, although it has a high sales fee.
    

RE: 373.5 by TUXEDO::YANKES

> Regardless of the mechanics of the bonds, they won't work since the base 
> noter's friend is looking for 10% return.  

The base noter's friend was looking for absolute liquidity,  absolute safety, 
monthly payments and 10% return.  There is NO such investment today.

Savings Bonds fill the first three needs,  as they can be cashed at any time, 
they are as safe as any investment,  and the base,  guaranteed return is higher
than any other investment that has similar risks.  The base return also is tax
deferred.

BTW:  There is a limit to how much you can invest in Savings Bonds in any year.


> Savings Bonds won't come near 10% unless inflation really takes off -- at 
> which point the base noter's friend probably needs more than a 10% rate of 
> return.

Agreed.  The market rate kicker to Savings Bonds will help if inflation rises 
a little,  but a dramatic increase in the inflation rate will make Savings 
Bonds and lots of other investments look pretty sad.


Phil

re: << Note 373.7 by WMOENG::SPIELMAN "jerry DTN 297-6924" >>>
                          -< These may be applicable >-

    ...
    
    II. Consider a closed end bond fund.
    
    ...
      
      Why "closed end" specifically?  Is there a reason that an open end
      bond fund would not be as good for this purpose?

    Thanks for all the fast and informative feedback...

    Perhaps I should have said "would like to achieve a 10% return" instead
    of giving the impression that 10% was required.

    This person cannot afford to risk principal, and needs the monthly
    interest or dividends (quarterly payouts may be acceptable) for living
    expenses.  The goal is highest achievable return without risking
    principal.

    Lets assume that a portion of the funds could be moved to a slight risk
    area.  Would one say that no more than 20% of funds should be moved
    there for a 60 year old seeking to live off of the returns?

    Where might an individual look to place this percentage of funds?

    Assuming $100,000 to be invested, how many different investment
    vehicles would be recommended?

    I know these are very general questions, and I appreciate the
    suggestions...  Mark
                  

    RE: .10   Why "closed end" bond fund vs. OPEN ?
    
    I have no particular reason. I just happen to have real experience with
    the Putnam fund.  In fact, I  haven't looked into the diffs between
    open and closed end bond funds. Are the open funds as readily listed
    (such as on NYSE ?). Perhaps that might have been a (weak) reason for
    choosing closed end.
    
    Jerry
    

re: .10, .12

>   ... Are the open funds as readily listed (such as on NYSE ?). ...
      
      Yes. I check the weekly prices in Barrons; I believe that open end
      funds appear in most daily papers that publish market data.
      
      I  thought  you might have been suggesting some magic based on the
      difference between net asset value and market price.  e.g. If  the
      bonds  in  a closed end bond fund are yielding 10% and you buy the
      fund for 10% under NAV you'll earn ~11% -- 10%/.9 -- not  allowing
      for trading costs and management expenses.

    How bout a AAA or AA Municipal Bond.  With $100,000, you can get in
    on an issue. Your yield will be about 6-7% but will be around 9% tax
    equivalent.  Your problem is liquidity, and risk.  Long term rates are
    not so bad right now, and may go lower (thus increasing your bonds
    value) plus you have the play that tax-free's may go up in value with
    tax increases. That is the "hedge" vs. risk you can look at.
    
    As for liquidity, that may be a problem.  If you need more liquidity,
    try a state tax exepmt bond FUND.  You lose some yield to expenses,
    but you are liquid.  Right now I am in Scudder Mass TF and they are
    absorbing the expenses.  The yield is 6%, 9% Tax equivalent.
    
    Murph
    

    She is in the lowest tax rate.
    
    I'm thinking perhaps 20-25% in a prefered stock (paying dividends)
    mutual fund and another 25-30% in a tax free mutual bond fund, and
    perhaps keep the other 50% in bank cd's.
    
    Any other recommendations on funds for the above?  Thanks, Mark

    
    
    Another one to look at:
    
    Fidelity MA Tax free high yield:
    
    	- has a $2500 min. initial deposit and is rated 5* my Morningstar
    
    Kaizad

	The basenoter says that tax is not a problem. With the expected yield
	of 10% on a 100000$ investment, this should in the lowest tax bracket. 
	
	Other options to consider are GNMA-based funds like Dreyfus or
	Benham's - they generally have a yield of over 10%. Also, look
	at B+ rated bond funds - usually these will have about 60-90% invested
	in B+ rated bonds, which yield anywhere from 10-18%. They are
	liquid, relatively safe and not prone to wide fluctuations. Many of
	these funds can be setup to get a monthly dividend check as well as
	have check-writing facillities. 

RE: 373.15 by BUSY::CLEMENT "Smells like Nirvana" >>>

> I'm thinking perhaps 20-25% in a prefered stock (paying dividends)

Preferred stock is not a suitable investment for this person.  It has a higher 
risk than the same company's bonds,  and probably has a similar to lower yield 
than the same company's bonds.  The main buyers of preferred stock are other 
corporations, (who get a tax break for collecting "dividends" rather than 
"interest") and speculators.  The corporate holders will often dump the stuff 
when the issuing company gets into trouble,  and if the issuing company 
recovers (or just survives) the speculators can make a large profit.  Or lose
every dime.


> and another 25-30% in a tax free mutual bond fund, 

Compare the after tax returns (what,  15% tax bracket?) and I'd bet that a 
long term US Treasury bond fund or a GNMA fund (Benham 1-800-472-3389) would 
have a better return WITH LESS RISK.


> perhaps keep the other 50% in bank cd's.

Put 15K into US Savings Bonds this year.  Repeat as long as interest rates on
CD's are less than ~5%


Phil

    RE: Savings Bonds / Income
    
    After holding savings bonds for 6 months, you can exchange them for HH
    bonds. Then you will receive monthly income deposited directly to your
    checking account. In any case, it will only get you 6% .
    

RE: 373.19 by DABEAN::NEARY "Bob Neary"

> After holding savings bonds for 6 months, you can exchange them for HH
> bonds. Then you will receive monthly income deposited directly to your
> checking account. In any case, it will only get you 6% .

First,  I should have remembered HH bonds.  At some point they will be a good
choice,  as they allow the continuing of tax deferral.

Second,  because of tax deferring,  you get about effective 6.1% from EE bonds
over 5 years. (15% tax bracket)  Early HH conversion nets slightly less,  about 
effective 5.8% over 5 years as the EE bond only earns 4.x% over the first six
months.

Third,  as the amount that is getting 6.1% (as opposed to 4% or whatever the 
CD's pay) goes up faster if the interest is reinvested in 6% Savings bonds
reducing the principal of the 4% CD's,  so the total return will be somewhat 
higher.

Fourth,  the half of the $100,000 where some risk will be taken is far more
important in the long run.


Phil