Road to wealth winds past junk to blue chips to a kinder tax man

The Ticker

June 26, 1998|By JULIUS WESTHEIMER

HERE ARE some money-making and money-saving ideas:

IMPROVEMENT: If you're tempted to buy low-rated junk bonds, here's encouragement from Smart Money, June: "From early 1997 to early 1998, junk bonds outperformed treasuries by a wide margin. Recently, junk bonds yielded 8.82 percent, on average, compared with 5.59 percent for treasuries. Today's junk bond default rate is 2 percent, far below the 10.6 percent 1991 rate, when junk bonds were hammered. To pick winners, check the company's cash flow against its debt obligations."

QUALITY: "Stick with stocks of companies that make unique high-quality products. As more low-priced foreign goods enter the U.S. market, companies that have above-average pricing flexibility should continue to do well. Examples are Gillette Co., Pfizer Inc. and Tiffany & Co." (Bramwell Capital Management Inc.)

STOCKS WIN: "The 1997 Taxpayer Relief Act lowered the maximum capital gains tax from 28 percent to 20 percent on assets held over 18 months. This creates new opportunities for investors as stocks beat bonds by a wider margin now. As an investment, stocks are generally preferable to bonds provided you diversify and stay in for the long term." (Tax Hotline, July.)

STUBS AS SUBS: "Leveraged buyout funds are popular among investors who can afford $250,000 minimums. Today when an LBO fund takes over a company, 10-15 percent of the stock is left to trade. Invest directly in these 'stubs' and bypass the 2 percent fund management fee. 'Stubs' are delisted quickly after the takeover and continue trading on the Over-the-Counter market." (Moneypaper.)

QUICKIES: "With the economy acting sublimely and financial markets priced as though everything is perfect, I expect any change will be for the worse." (Ron Spaulding, chief investment officer, Safeco Mutual Funds.)

"The stock market pessimist may be right in the long run, but the optimist has a better time during the trip." (Bits & Pieces.)

Pub Date: 6/26/98

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