Bond investor seeks a simple formula

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Q Can you give me a formula to rank bonds? I'm looking for something that factors the face value with the interest rate on the bond. For instance, is it better to buy a bond with a lower purchase price and 5 percent return, versus one with a higher price and a 6.25 rate?

B.L., Maui, Hawaii

A "I wish it were that easy" (that is, using a formula), says Jay Chitnis, a managing director and bond expert with First Union Securities, in Atlanta. "Choosing between different bonds involves making trade-offs."

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Factors to consider, he says, include credit quality, the duration of the bond, its interest rate, and any features that enable the issuer to redeem the bond prior to its maturity date.

Q I have a tax-sheltered annuity (TSA) with Lincoln Life that I began drawing on several years ago. The account, I figure, will be empty in another 10 years. I am now considering buying a lifetime annuity from Lincoln Life. Is this a wise move? I have some IRA CDs, some regular CDs, several stocks, and a small pension.

Name withheld, Ft. Lauderdale, Fla

A "I believe that you could do better without going for the annuity," says Gary Schatsky, a fee-only financial planner in New York.

Annuity expenses are much higher than for nonannuity products, he says. So if you do buy an annuity, check out expense ratios with several "low-cost providers, such as TIAA-CREF and Vanguard."

If you go with either, have the new company directly roll over your TSA money, so that you avoid taking a large tax hit.

To check out annuity options with Lincoln Life, contact the company at 800-348-1212. Lincoln Life has garnered very high ratings for financial strength from insurance-rating services.

Q In your Aug. 21 column, you said bank accounts are federally insured up to $100,000. But why didn't you mention that some banks insure past $100,000 through the Depositors Insurance Fund (DIF)?

R.S., Acton, Mass.

A DIF only insures state-charted savings banks in Massachusetts. The insurance covers balances in excess of the $100,000 covered by the Federal Deposit Insurance Corporation (FDIC).

DIF does not insure banks in other states, according to a DIF spokesman, although it does cover several branches of Massachusetts banks in New Hampshire.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

(c) Copyright 2000. The Christian Science Publishing Society

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