Taking Stock: Bonds for Income

Dear Mr. Berko: We have plenty of money but little income. We'd like more income, and our broker recommends we invest $50,000 each (a total of $250,000) in five different corporate bond funds yielding 4 percent. This would bring us about $10,000 a year in bond income, which is $7,000 more than we get at the bank. Please tell us what you think about these bond funds (list enclosed) This is almost all of our remaining cash. We also have $250,000 in five American Funds (list and cost basis enclosed). We have taken a 4 percent annual withdrawal from them since 2007 and as you can see, we've lost lots of money. We're not sure about putting $250,000 in bonds, but our broker says that their analyst recommends corporate bonds because of their safety in a slowing economy. Both of us have Social Security and pensions , $19,000 in credit card and other debts, our home is mortgage free and we are not hurting, but we're pinching pennies. --RC in Oklahoma City, Okla. Dear RC: Those bond funds own many quality issues, and I'd be proud as a patriot to own the underlying common stock. But any analysts recommending long-term bonds in this market ought to be charged with sedition. I'm ''gabberflasted!'' Several readers have referred to Shalett's (Merrill Lynch Global Wealth Management) affinity for corporate bonds, and she may be right for the short-term (6 to 16 months), but it's the longer term where we expect to spend the remainder of our investment life. And ramping up on 4 percent corporate bonds is the equivalent of skydiving without a parachute ... You'll be OK for the first few thousand feet. But investing $250,000 (nearly half your assets) in bonds yielding 4 percent is financial malfeasance. I'd prefer another advisor to pack your parachute. Your mutual funds make me cringe. You own AMERICAN FUNDS' largest mutuals: GROWTH FUND OF AMERICA, FUND OF AMERICA, INVESTMENT COMPANY OF AMERICA, FUNDAMENTAL INVESTORS and WASHINGTON MUTUAL, each with a 5.75 percent sales charge. And those five funds have had a negative performance during the past five years. Because you've been taking 4 percent from principal since 2008, it's little wonder your account is down significantly. AMERICAN has over 200 funds and brags it's been in business over 50 years helping investors with retirement and college planning. That bragging is gagging me. Your original investment is down by $44,200, and you paid a 5.75 percent sales commission plus annual management fees for this privilege. If your five AMERICAN FUNDS are down 3 percent between now and this time next year and you take 4 percent again for income, you'll lose 7 percent more in principal. This is why I always recommend dividend growth stocks. While their values should also fall in a declining market, your dividend income will grow most years, and if you own the right issues, you won't have to invade principal. Issues like AT&T, ConocoPhillips, Novartis, Buckeye Partners, Kinder Morgan, PPL Corporation, AstraZeneca and Altria are just a few that yield over 5 percent and have regular dividend increases. I was fortunate to be trained in the brokerage business 50 years ago by a Jim Barnes, the Dean of Old School stockbrokers. Back then, brokers were chosen because they had a high degree of probity because they were intelligent and because they felt a kinship with the business. We learned how to select attractive stocks with good dividends, we recommended utilities, convertible bonds and municipal bonds and advised clients to be long-term investors. The customer always came first, which was old school, but those times are gone. Today's brokers are smart lads, but they're also articulate incompetents. They lack the skills to recognize long-term growth and income stocks, to pick an undervalued utility issue, to identify a convertible preferred or select municipal bonds that represent good value. Today's brokers are trained to sell high commission mutual funds, corporate bond and municipal bond funds, ETFs , variable annuities, real estate, gas, oil and commodity partnerships and hedge funds. Today the customer doesn't come first, which is evident by how poorly your broker was trained and by how poorly you have done. Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. Copyright 2012, Creators.com Published: Thu, Jul 19, 2012

––––––––––––––––––––
 Subscribe to the Legal News!
 https://legalnews.com/Home/Subscription
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available