Tax time brings IRAs to mind

Andrew Leckey

February 11, 1992|By Andrew Leckey

It's retirement account time.

More Americans think about their Individual Retirement Accounts and Keogh plans for the self-employed at tax time than any other time of the year. Whether they contribute new money or not, they ponder whether to shift around their retirement holdings. In many cases, the dollars are substantial.

Whatever Congress eventually decides about the future features of IRAs, be sure to diversify retirement holdings and take into account all recent trends in interest rates and financial markets.

"Forty percent of our retirement accounts are in stocks, a reflection of the continued success of the market and the very low rates offered on certificates of deposit," said Don Underwood, vice president of retirement plans for Merrill Lynch & Co. "Self-directed IRAs are popular because people are smarter about their investments these days and want a direct participation in handling them."

"One of our most popular IRA investment vehicles is the Asset Manager Fund, a balanced fund which lets you diversify your holdings through domestic or foreign stocks and bonds or money-market instruments," said Ellen Feinsand, marketing manager for retirement products at Fidelity Investments.

"About half of our retirement accounts currently are in money-market funds, 40 percent in equities and the remainder in bonds."

Banks feeling the pinch of low rates offer choices besides their traditional CDs and money-market accounts.

"With a lot of IRA certificates of deposit expiring in March and early April, investors are anticipating interest rate shock from the current low returns," said Richard Davies, head of investment services for First National Bank of Chicago.

"So, they're looking away from CDs toward government bond funds and adjustable-rate mortgage mutual funds."

Although investment trends in bank retirement accounts tend to mirror the general market, they usually have a conservative bent, Mr. Davies said. Mutual funds are gaining a greater portion of retirement account money. But shop carefully, for they are not all alike and are not for all investors.

"Retirement accounts should be conservative rather than high-growth, since you're allowed to deposit only a limited amount of money annually, and you don't want to lose it," said Don Phillips, vice president of Morningstar Inc., which tracks funds.

"I recommend a growth and income fund for younger individuals, an equity income fund for those with a medium-term perspective and a balanced fund for those with retirement close at hand."

His favorite growth and income fund is Selected American Shares, a steady and dependable "all-weather" stock fund capable of outstanding returns.

For an equity income fund, Phillips recommends Lindner Dividend Fund.

A good balanced fund is the Vanguard Star, Phillips says. Because it is highly diversified, it offers stability by putting six Vanguard funds under one umbrella.

If you have enough money to invest, consider buying individual stocks.

"When seeking stocks for your IRA, buy conservative and seek out low-risk stocks," advised Louis Navallier, editor of the MPT Review investment letter, whose model portfolio is up more than 900 percent since 1985.

His individual stock picks for IRAs are Home Depot, Duty Free International, Wausau Paper Mills, Goodyear Tire & Rubber, Stryker Corp., Arrow Electronics and Aileen Inc.

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