Fed action buoys some

Andrew Leckey

November 19, 1991|By Andrew Leckey | Andrew Leckey,Tribune Media

The Federal Reserve Board may or may not be able to jump-start the nation's economy with its move to cut interest rates to the lowest level in 18 years. But it does have investors in bank and money-market fund instruments jumping out of those vehicles.

Returns of around 5 percent aren't nearly as attractive as the 24.5 percent total return logged by the average stock fund this year, the 11.3 percent return turned in by the average corporate bond fund, or the 9.9 percent return of the average government bond fund.

"With the yield on certificates of deposit so low, we've seen a steady movement of money into alternatives, such as stock funds, corporate bond funds and government bond funds," said Barbara Brandell, a branch manager with Boston-based Fidelity Investments, the nation's biggest fund company. "A lot of the increase in these funds is new money."

The search for higher yields brings with it the possibility of fluctuations and declines in value.

"It's true that the investment story of the year is declining interest rates and the movement of money from money-market funds into stock and bond funds, but choices aren't quite so simple," said Don Phillips, publisher of the Chicago-based Morningstar Mutual Funds research publications. "Higher yield is never a gift, but the result of higher risk."

While a mutual fund provides more diversity than investing in one stock or one bond, the goals and performance of funds differ. It makes sense to spread money among several of them.

"The movement into mutual funds will continue, but putting everything into one fund isn't the way to go, and the investor should instead diversify among a basket of funds," said Michael Hirsch, New York money manager and author of the new book "The Mutual Fund Wealth Builder."

It's easy to figure which investments to get out of. It's a bit tougher to find higher-yielding replacement investments in which you can place your confidence.

There is one stock fund that both Hirsch and Phillips heartily recommend. For conservative growth, their top choice is Selected American Shares Fund, Selected Financial Services, Cleveland, a "no-load" (meaning no initial sales charge) fund, up 31.7 percent this year following a 3.4 percent decline in 1990.

Hirsch's second choice for conservative growth is AIM Charter Fund, AIM Advisers, Houston, 5.5 percent load, up 26 percent this year following an 8.2 percent gain last year. Phillips' second pick is the Nicholas Fund, Nicholas & Co., Milwaukee, a no-load fund up 29.8 percent this year after a 4.8 percent decline last year.

"Beware of investing in the fund du jour that gets all the publicity, for, like the Baskin Robbins flavor of the day, it will go out of favor and likely leave you with an outmoded investment," warned Hirsch, pointing out that many of the new international funds or high-technology funds fall in that category.

For more aggressive stock investors, Hirsch recommends FPA Capital Fund, First Pacific Advisors, Los Angeles, 6.5 percent load, up 53.7 percent in 1991 following a 13.8 percent decline in 1990.

The favorite bond fund of Hirsch is IDS Selective Bond Fund, IDS Financial Services, Minneapolis, 5 percent load, up 10.9 percent in total return this year following a 6.6 percent gain last year.

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