Stock And Bond

Gyrations in the stock market this year have persuaded many mutual fund investors to consider investment-grade bond funds as an alternative.Other investors who hold a mix of stock and bond funds have seen the bull market in stocks throw their intended proportions of stocks and bonds out of balance, as stock values have climbed faster than those of bonds. They need to rebalance by adding bonds.In either case, shopping for bond funds is daunting. But one thing you'll discover is that low-cost, index-based investing, which has outperformed active investing in equities for several years, works even better in bond funds.

The training wheels have fallen off balanced funds.For years, many financial planners and investors derided funds that combined stock and bond investments as suitable only for beginners -- if then. High fees and lackluster performance turned off others who might have liked balanced funds' convenience.Net purchases of balanced funds dropped from $14 billion in 1993 to $1.8 billion in 1995. By contrast, purchases of growth-stock funds bloomed from $21.4 billion to $37 billion.Since then, however, balanced funds have staged a comeback -- thanks to a volatile stock market and investors' reassessments of their usefulness.

Investors struggling to pick from among the 8,000 stock and bond funds on the market can simplify the task by choosing a "fund of funds." These investments own shares in other mutual funds and boast several advantages: simplicity, diversification and access. Only one thing is generally missing -- good returns."I don't rule out the possibility that actively managed funds of funds could be a good package," said Don Phillips, president of Morningstar Inc., the fund trackers in Chicago. "I just haven't seen anyone do it right yet."

If you're ever in line behind Microsoft's Bill Gates at Nordstrom, and he charges the polo shirt on MasterCard, and he throws the yellow slip in the trash, dive in there and get it.It might be worth something someday.As capitalism tightens its embrace on the planet, the residue of tycoons is becoming a valuable commodity.Collectors bored of coins and enticed by history are stoking a trade in old stock certificates, bond coupons and other financial flotsam. Documents once stuffed in barristers' files are seeing the light of the 1990s, matted, framed and hanging in living rooms.

Cash flows into mutual funds that invest in stocks slowed a bit in May from April's level, but demand remained strong, with aggressive growth funds continuing to attract the largest portion of assets, an industry group estimated last week.Mutual funds that invest primarily in stocks took in an estimated $22.5 billion in net new cash in May, down from April's total of $26.4 billion but still the third highest monthly total on record, according to the Investment Company Institute of Washington.

NEW YORK -- Despite last week's rough ride in the stock and bond markets, evidence mounted that investors were not losing their appetites for stock and bond mutual funds. Far from it: A mutual fund trade group estimated that investors poured more cash into stock and bond funds in the first quarter of 1996 than in the first nine months of last year.The Investment Company Institute, a mutual fund trade group, estimated that stock and bond funds took in a net $23 billion in March. While that was down slightly from February's total, it also supported contentions by mutual fund companies that individual investors did not flee the markets after a sharp decline in stock prices early last month.

IN THIS record-setting stock market, with the Dow Jones industrial average this morning at an all-time high of 6,266.04 -- up 1,148.92 points, or 22.4 percent, this year -- why not consider some relatively conservative investments?Kiplinger's Personal Finance Magazine, December, lists "Safe Stocks If The Market Flops." Among them are St. Paul Companies, Sun Trust Banks, Clorox, Kimberly Clark, Procter & Gamble, Winn-Dixie Stores, American Home Products, Schering-Plough and Warner Lambert.

Encouraged when Federal Reserve chief Alan Greenspan testified yesterday, "Weakness in the dollar has been overdone" -- and gave no hint that the Fed would raise interest rates to defend the ailing currency -- investors pushed stock and bond prices higher.The Dow Jones industrial average climbed 16.60 points, to close at 3,979.23, and 30-year Treasury bonds gained almost one full point. The dollar rebounded against most major currencies.TAKE YOUR CHOICE: "Given the stock market's strong rally since early December, a pullback would not be surprising."

In the wake of a strong bond rally that pushed the 30-year government issue ahead 1.75 points -- and shoved its yield down to 6.74 percent -- the Dow Jones industrial average yesterday advanced 1.72 points to a record closing peak of 4,438.16.Interest rates fell sharply after the government reported that April durable goods orders slumped 4 percent, slowing the economy to "anything but a soft landing," as one local analyst put it.WALL ST. WISDOM: "Don't overestimate the skill and wisdom of professionals . . . Invest in companies, not in the stock market . . . Ignore short-term fluctuations . . . Invest in a house before you invest in a stock . . . Take advantage of what you already know as a consumer (like Dunkin' Donuts stock in 1982)

Legg Mason Inc. said its profits fell 58 percent in the last three months of 1994, as higher interest rates froze public offerings for bonds and real estate investment trusts and drove investment banking revenues down to just over one-third of late 1993 levels.The Baltimore-based stock brokerage, best known for serving retail customers, said it earned $4.1 million during the quarter, the third of the company's fiscal year. That was down from $9.9 million in the same three months of 1993.Vice Chairman John F. Curley Jr. said the drop in stock and bond offerings was the main reason for the decline.

Shares of Baltimore's Legg Mason Inc. suffered the largest one-day percentage drop in its history as a public company yesterday and plunged to their lowest price in almost 10 years. Legg's shares fell nearly 25 percent, or $6.25, to $19 in a broad market sell-off amid continuing fears over the credit markets, weakening consumer spending and the economy as a whole. The Dow Jones industrial average closed below 9,000 for the first time since 2003. The Wall Street turmoil also punished stocks of other Baltimore-area companies and financial institutions.

Should you bolt from your stocks and stock mutual funds? Perhaps you've been tempted as the stock market has plunged repeatedly since mid-July. Virtually everything you own - whether you invest in U.S. stocks or those overseas - has probably plunged during the past four weeks. The average mutual fund that invests in U.S. stocks has lost about 7 percent, and the average fund that invests around the world is down about 8.7 percent, according to Lipper Inc. Some analysts think the worst is over and investors will calm down as they see the end of missteps with exotic mortgage-related securities.

This is what you call "contagion." With revelations throughout the past week that the housing recession is intensifying and infecting stock and bond investments, as well as lending practices, investors have focused on what could go wrong. "Recession chatter is surfacing," said Merrill Lynch economist David Rosenberg. With homeowners still facing mortgage adjustments of an extra 5 or 6 percentage points on their mortgage interest rate, consumers could face more foreclosures and struggle so much with monthly payments that they will cut back sharply on purchases.

No question, William Richkus' portfolio is diversified. His holdings: mutual funds with corporate and municipal bonds, inflation-protected Treasuries, real estate, international stocks and small-, medium- and large-cap equities in growth and value styles. Last month, when the U.S. stock market turned in its worst performance in years, Richkus noticed something across all asset classes: Down. Down. Down. Waaaay down. "Every one of those funds declined, although to differing percentages," he e-mailed.

Q. I am a single, 32-year-old female and know I should be investing in stocks for my long-term goals, including retirement. I've managed to save $30,000, but I keep it all in the bank because I am afraid to put the money into stocks or mutual funds. How can I overcome this fear? Do you have any suggestions for me? A. From the many letters and e-mails I get, I assure you that your fear is not uncommon. And after the 2000-2002 bear market, a healthy respect for risk is not a bad thing. Your e-mail tells me you understand that if you invest too cautiously you may not accumulate the money you need to meet your goals.

ONLY 213 YEARS after the New York Stock Exchange's founding, the government has added regulation requiring many brokers to say this before they take your money: "Our interests may not always be the same as yours." No kidding! Besides enjoying commissions on stock and bond trades whether or not the trades help your portfolio, brokerages often receive what amount to legal kickbacks from sellers of mutual funds, variable annuities and other products. A broker might be tempted to sell you a mediocre fund with a big referral fee instead of a great fund with no fee. No, his interest is not the same as yours.

MORE THAN 60 percent of 401(k) participants don't invest outside their plans, which makes it all the more critical that plans have good investment choices. A recently released survey finds that the majority don't. A review of 680 plans by three finance professors at New York and Fordham universities concluded that 62 percent of plans don't offer adequate diversification. That can make a big difference for workers over 20 years, whose accounts could grow to only one-third the size of nest eggs invested in a broad range of asset classes, the professors found.

The debate over Social Security reform has exposed a little secret among professional money managers: They're not sure what they're doing, either. President Bush proposes that workers be allowed to divert part of their Social Security insurance premiums into private accounts, to be invested in professionally managed stock and bond funds. Workers naturally are wary. Perhaps coincidentally, the pros who would be asked to manage the money are having an anxiety attack as well. Rules of thumb that governed investing for decades are being questioned in the wake of the Nasdaq bubble and the widespread forecast of flat stock and bond markets for the next several years.

T ROWE PRICE Associates stock is up nearly 10 percent since President Bush's re-election, partly on guesses that the Baltimore company will benefit from proposals to allow workers to invest Social Security money in stock and bond markets. "Windfall for Wall Street" might be the headline for national media, but one could substitute "Pratt" for "Wall" and still capture the sentiment. "T. Rowe Price is going to do spectacularly well" if Congress allows private Social Security accounts, New York money manager Michael Holland told CNBC's Louis Rukeyser's Wall Street after the election.

No tables U.S. stock and bond markets were closed yesterday in observance of a national day of mourning for former President Ronald Reagan. No stock tables appear today.