Use care with these risky investments
- Alan Lavine and Gail Liberman
Although the markets may look attractive, there are certain investments that require you to exercise extreme caution. Here are a few:
Foreign currency mutual funds. Unless you're a trader, foreign currency mutual funds or foreign currency Certificates of Deposit can prove risky. You're betting on the value of the dollar versus other nations' currencies. The dollar is at a record low against European and other currencies. Funds such as the Merk Hard Currency Fund and the Rydex Dollar Strengthening Fund are risky bets.
Junk bond funds. Although junk bond funds, or high-yield bond funds, sport rates of 7 to 8 percent, they invest in companies with poor credit ratings. Analysts say that if the economy slows, you could see more defaults in these types of companies. So if you invest in a high yield bond fund, make it a small part of your portfolio.
Funds that have seen an explosive growth of assets. If a stock fund has several billion dollars in assets due to a couple years worth of stellar performance, it could be too late to invest. A report by Morningstar Inc., Chicago, says these funds are too large, will track the market averages, and no longer will deliver market-beating returns. Funds that Morningstar places in this category: American Funds Growth Funds of America; American Funds Capital World Growth and Income; American Funds Europacific Growth; Dodge & Cox International and American Funds Capital Income Builder.
So what pays attractive dividends and is typically less risky?
Utility stocks and utility stock funds are good long-term investments that pay you income. This year, utility stock funds registered a total return of 24 percent. Total return includes price appreciation of the bonds, plus reinvestment of dividends.
Top-rated utility funds own some of the following companies:
The Evergreen Utility and Telecommunications Fund owns BellSouth Corp., Verizon Communications, TXU Corp., Public Service Enterprise Group and KeySpan.
MFS Utilities Fund owns America Movil, Comcast, Calpine Corp. and Edison International.
The Eaton Vance Utility Fund owns stocks, such as Mirant Corp. and NRG Energy.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.
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