Inflation protection not always a good move
Q Are inflation-indexed US Treasury bonds a good investment at this time for a young retiree's asset allocation?
C.D., via e-mail
A For persons in their 40s or younger, "TIPS [US Treasury inflation-protected securities] are just not aggressive enough of a vehicle to make substantial gains over time," says David Bendix, president of Bendix Financial Group, Uniondale, N.Y.
Mr. Bendix prefers stocks. For an older investor, TIPs can make sense as part of a larger asset-allocation plan, he says, "but they should not constitute over 10 percent of one's portfolio."
Bendix warns that inflation may be moderating. "If so, that would make TIPs less attractive for the months ahead."
Q My husband and I are both 34 years old and have about $135,000 in tax-deferred accounts. We have invested 86 percent of our assets in some 10 mutual funds. The largest holding, at 43 percent, is in the Vanguard 500 Index Fund.... The other funds range from 2 percent of our holdings to 13 percent. All are stock funds, mainly in the growth area. We also hold several other non-fund investments. What do you think of our asset allocation?
C.N., via e-mail
A "Having an all-stock, growth-orientation makes sense when you are in your 30s," says Tim Schlindwein, a mutual-fund expert with Schlindwein Associates, Chicago. But still, he says, diversification into non-growth stocks can be important to protect against market gyrations.
He suggests you beef up your international holdings, and add a presence in small-cap, mid-cap, and value stocks.
Mr. Schlindwein also recommends that you cross-check your funds for overlap with the Chicago-based information firm, Morningstar (www.morningstar.com). You list, for example, three domestic equity index funds. Cut the number to one, he says.
Q What is the bond interest rate, presently in effect, for Series EE Savings Bonds for the months of May through October 2000?
M.G., Ionia, Mich.
A According to the US Treasury, for EE bonds issued on or after May 1, 1997, the interest rate on EE bonds for the period May through October, 2000 is 5.73 percent. Rates are slightly lower for bonds issued before May 1, 1997, and vary according to the date of issue.
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