Seeking a bigger bang for bucks stuck in bonds
Q We are a retired couple in our 80s. We have $40,000 invested in Scudder's AARP GNMA fund and $60,000 in the Fed A Fund for US Government Securities. Between the two, we receive about $520 per month. Is this a good return, considering risk factors, or could we do better with something else?
R.S. Leo, Ind.
A "Your current earnings are very conservative, but also very risk-free," says Lewis J. Altfest, who heads up L.J. Altfest & Co., in New York.
"It appears that you are bond investors," he says. If that's the case, he says, you might consider putting some money in a high-yield bond fund, such as Northeast Investors (899-225-6704), which is currently paying about 14 percent. But these "junk-bond" funds are subject to sharp market risk in an economic downturn, Mr. Altfest notes.
More conservative bond funds worth considering, he says, include the Vanguard Total Bond Market Index Fund (800-662-7447), which has yielded about 8 percent so far this year, and the Vanguard Inflation Protected Securities Fund. The latter is a new fund and has an adjustment to offset inflation. It has returned about 3 percent since its inception June 29.
Q We have 750 shares of AT&T. Now that AT&T is creating a family of four new companies, we wonder if we should sell the stock before year's end. We got a letter from AT&T saying the sum of the dividends for the four companies are likely to be substantially less than those previously paid. Should we sell, or hang on for possible long-term gains? We had planned to pass the stock along to our kids someday.
D.H., Bloomington, Ind.
A "You need to reexamine your original reason for owning AT&T shares," says Gary Schatsky, an attorney and fee-only financial planner in New York. "If it was for the income from dividends, you may now have a reason to sell the shares, since your dividends will be less. But if the reason was to bequeath the shares to your children, you may want to retain the stock."
Splintering the stock into four companies may not be adverse, Mr. Schatsky says, since the company is seeking to enhance shareholder value. Moreover, if you do sell, you will probably face a capital-gains tax. If you bequeath the shares, you avoid that tax.
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