With Bill Clinton in the White House, it's time to make plans for that certificate of deposit money you may have coming due.
Keep it short-term.It's also high time you thought about bond and bond fund investments you may hold.
Keep them short-term.
Because money-market fund holdings are inherently short-term, content yourself there with simply hunting up the best-yielding funds available.
Why all this short-term thinking? It's because this is a period to bide your time as Clinton policymaking settles in and recession eases out.
Interest rates aren't expected to do much this year. The gradual trend is likely to be upward, however, because rates have been kept at abnormally low levels for a while. As a result, locking in a long-term rate makes little sense right now.
"Keep it short, short, short, for interest rates run in cycles and what comes down goes up, and vice versa," advised Robert Heady, publisher of 100 Highest Yields, P.O. Box 088888, North Palm Beach, FL 33408, a weekly bank rate newsletter that costs $98 annually. "Right now we're at the bottom of a 45-month down cycle in savings rates and the next cycle will be up."
The average current yield on six-month CDs at financial institutions nationally is around 3 percent, with one-year CDs closer to 3.5 percent. Heady recommends shopping at five local institutions, then examining rates offered by the highest-yielding institutions around the country.
For example, Southern Pacific Thrift & Loan, Culver City, Calif., recently offered the best six-month CD at 3.85 percent compounded daily with $5,000 minimum deposit, according to the newsletter. J.C. Penney National Bank, Harrington, Del., had the top one-year CD at 4.07 percent compounded daily with $2,500 minimum deposit.
"Interest rates will rise gently, though not substantially, this year, but over the next two years rates will be rising," said William Donoghue, publisher of Dono-ghue's Moneyletter, 290 Eliot St., Ashland, MA 01721, which has an $87 annual subscription rate for 24 issues. "That means you should avoid long-term bond funds, for you could lose the value of your principal."
In money-market funds, Donoghue recommends the $316 million United Services Government Securities Savings Fund, San Antonio, currently offering a 3.7 percent return, after producing a 4.43 percent annual return in 1992. Another choice is the $136 million Alger Money Market Portfolio, Jersey City, N.J., with a 3.27 percent return, following a 3.93 percent annual return in 1992.
"If you want to get higher rates than CDs, you have no choice but to take additional risk, such as interest rate risk by going longer-term," said Don Phillips, publisher of the Morningstar Mutual Funds advisory publications, who suggests shorter-term bond funds. "The high-yield bond funds that did best last year took on considerable credit risk."
High-yield funds able to shrewdly play corporate workout situations and bankruptcies to find capital-appreciation bonds pros-pered.
Top taxable bond fund, according to Morningstar, was $1.7 billion Fidelity Capital & Income Fund, Boston, minimum investment $2,500, with 7.94 percent current yield and 28.35 percent annual return in 1992. Second was $64 million Advantage High-Yield Bond Fund, Boston, $500 minimum, with 10.27 percent current yield and 27.57 percent annual return.
Last year was terrific for municipal bonds, aided by the perception Clinton will boost tax brackets.
Best-performing tax-free bond fund available nationally was $21.7 million Strong Insured Municipal Bond Fund, Milwaukee, $2,500 minimum, with current yield of 5.68 percent and total return of 13.06 percent in 1992. Next was $20.2 million Vista Tax-Free Income Fund, Chase Manhattan Bank Vista Service Center, Kansas City, Mo., $2,500 minimum, with 6.01 percent current yield and 1992 total return of 12.83 percent.
Due to currency risks, many world income funds had a disastrous year. Even the best-performing weren't overwhelming.
Top-ranked was $1 billion Scudder Short-term Global Income Fund, New York, $1,000 minimum, with 8.98 percent current yield and total return for 1992 of 5.49 percent. Second was $451 million Fidelity Short-Term World Income Fund, Boston, $2,500 mini-mum, with 7.91 percent current yield and 1992 total return of 5.42 percent.