More nuggets along the road to prosperity

The Ticker

September 26, 1997|By Julius Westheimer

As we approach the year's final quarter, here are some warnings, advice and opinions about where to put your money now:

WARNING (1): In the next few months, many mutual funds declare and pay a year-end capital gains dividend. Be sure to buy a fund after its capital gain dividend is declared. If you buy before that date, you'll actually be paying a capital gains tax on a return of your own money.

WARNING (2): Today through Tuesday, some mutual funds engage in "window-dressing." To make Sept. 30 reports to shareholders -- and bosses -- look better, fund managers often load up on popular stocks and dump losers.

This strategy is neither unethical nor illegal, but managers often overpay for recent stars to dress up shareholder reports.

PAY LATER: Want to defer income taxes? Interest on Series E and EE U.S. government savings bonds is generally deferred until the bonds are redeemed or mature.

To further defer interest and tax due on the interest, note that bonds can be rolled into Series HH bonds within one year of their maturity dates. This technique defers interest on the Series E or EE bonds until the Series HH bonds mature.

CONSIDER ZEROS: People in high tax brackets who don't need current income -- but would rather see their investments grow -- should consider zero coupon tax-free municipal bonds. "Zeros" are sold at substantial discounts from their face amounts. When a zero matures, the buyer receives the full face value of the bond.

Example: A $20,000 face-value municipal bond maturing in 20 years may be bought at roughly $7,000. After 20 years, the investor receives $20,000. The difference between $20,000 and $7,000 represents interest. This example is based on a 5.35 percent current interest rate, which automatically compounds until the bond matures. Municipal bond interest is tax-free.

BALANCING ACT: "For conservative investors: Age 30-40: 40 percent stocks. Age 40-50: 35 percent in stocks. Age 50 and beyond: 30 percent stocks. In all cases, the balance goes in bonds." (Louis Altfest, financial planner.)

"The Golden Rule of Investing: No matter how good the market looks, never invest money you cannot afford to lose." (Peter Lynch.)

Pub Date: 9/26/97

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.