Hot tip is for a high-risk investment

On Money

March 24, 1996|By Susan Bondy

Last week, I got a call from a stockbroker recommending an energy growth fund. I was told it is yielding 17 percent. Do you think this is risky? What is its potential for future income? How can I tell if the original investment is going up or down?

In 1994, I lost some money in a bond fund, and now I'm kind of scared.

The investment you are considering is not a mutual fund. Rather, it is an oil-and-gas limited partnership. As such, there is no accurate way to gauge whether the investment is going up or down until the partnership sells its assets, which probably will not happen for at least five to 10 years and most likely much longer.

This is certainly considered a risky investment for a number of reasons:

1. It lends money to an industry that has a history dotted with failure.

2. It is not liquid. Although there are a number of ways to sell your units early, none are guaranteed, and if you have to sell, you could end up with a major loss.

3. It is a long-term investment with little or no interim valuations.

4. The current yield is more like 7 percent, since a major portion of the partnership's funds still are not invested. Whether the ultimate yield will end up at 17 percent is anybody's guess, but the odds are against it.

On the other hand, this can be viewed as an interesting "play money" investment.

If this particular partnership's investments all turn out to be FTC winners, this may be a good buy. However, we can only tell winners and losers in hindsight.

In this case, your fears are real. On top of that, I surmise you have a low emotional risk tolerance (losing sleep over investment uncertainties) and perhaps even a low financial risk tolerance (a high dependence on savings to supplement your income).

If last year's drop in bond funds scared you, I would suggest you stay away from this limited partnership. This type of investment is only appropriate for high net-worth individuals who understand the risks and are willing (and financially able) to gamble a small portion of their assets on a wild bet for the long run.

Loan scam

Here's the latest fad in loan scams: Recently, a new batch of ads for easy loans has hit the media nationwide. These commercials have a few things in common:

They all speak to the person who needs cash but can't get it.

They all promise fast results.

The references to their fees are obscure at best.

Some offer toll-free 800 numbers. When you call these numbers, a recording tells you to call a 900 number. Others simply tout their 900 numbers in the ads.

The costs generally run from $50 to $300, and the results are always the same a big, fat nothing. Furthermore, when these scams are uncovered, the operators simply close shop and then open up in another state.

Pub Date: 3/24/96

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