You can do better than inflation-indexed T-notes

The Ticker

December 25, 1996|By Julius Westheimer

IF YOU'RE thinking of investing in the new, much-hyped "inflation-indexed"

Treasury notes, study carefully before investing.

I don't feel I'm unpatriotic, but Uncle Sam could be more generous. And you can do better.

Here's the story: Beginning early next year, the Treasury will issue 10-year notes indexed to inflation. Notes are the same as bonds, but with shorter maturities. On Monday, the Treasury announced that it would delay issuing the bonds from its previously announced date in January.

The new notes carry a low interest rate -- about 3.375 percent. The rate is fixed for the life of the note, but the note's redemption value rises every six months, with consumer price increases. These notes protect investors from severe inflation. But, during mild inflation, they may not perform as well as traditional Treasury notes and bonds.

And, despite the inflation-hedge of the new notes, they're no match for stocks. Over the years, stocks gave an annual total return (growth plus income) of about 10.5 percent, double the return from bonds and triple today's inflation rate.

The new notes also will bring tax and record-keeping nightmares. Although your interest is exempt from state and local taxes, the income is subject to federal tax. If you must buy the new notes, hold them in a tax-sheltered retirement plan.

For children, a good bet might be the Stein Roe Young Investors Fund, nicknamed "the Kiddie Fund." In a recent performance survey, the fund ranked first among 735 growth funds.

The fund buys blue-chip stocks familiar to youngsters: Coca-Cola, Disney, McDonald's, Nike. For an educational, instructive kit with details, minimum purchases, fees, etc., dial 1-800-403-KIDS.

For other tips, the thick 50th anniversary issue of Kiplinger Magazine, on newsstands this week, includes these "1997 Keys to Financial Security":

Invest in yourself through continuous education, buy enough insurance to protect your loved ones, borrow sparingly, save part of your income each payday, invest in quality assets of diverse types.

And a new paperback, "Personal Best: 1,001 Great Ideas," by Joe Tye ($12.95), lists advice from the classic, "The Richest Man in Babylon," by George Clason:

Before you spend a penny of your pay, pull out at least 10 percent to invest. Be cautious with your investments and get capable advice. Don't demand extraordinary returns; they involve high risk. Don't invest in businesses with which you're unfamiliar.

COMING JAN. 1: Eight new tax breaks, including penalty-free IRA withdrawals and tax-free medical savings accounts for some self-employed people and employees of small firms. For a two-page description of all eight breaks, send a stamped, self-addressed envelope to me, in care of The Baltimore Sun, 501 N. Calvert St., Baltimore 21278, and I'll mail you a summary.

INVESTING CHRISTMAS MONEY: S&P Outlook's "1997 Forecast Issue" includes these stocks in a "Five-Star Buy List": General Electric, Gillette, International Business Machines, Johnson & Johnson, Nike, Merck and Procter & Gamble.

Pub Date: 12/25/96

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