Massive foreign purchases of U.S. bonds have propped up this lengthy stock rally. By helping fund the budget deficit, they've left U.S. investors with more money to spend on stocks. According to Tudor Capital, there's been a 97 percent correlation over the past 20 years between foreign-bank holdings of U.S. debt and stock market increases. Should foreign buying of U.S. bonds decline, we could see interest rates rise and bonds, the dollar and then stocks decline.
- A simple calculation from Bob Carlson's Retirement Watch newsletter (8245 Boone Blvd., Vienna, VA 22182) to help you determine if tax-exempt bonds are for you: "Start with 1 and subtract your marginal tax rate. Multiply the remainder by the yield you can get on taxable investments. If the result is higher than the yield you can earn on tax-exempts, stick with taxable investments."- If you're looking for a stock fund to weather the next bear market, you might consider one that survived the Great Crash of 1929. Here, according to Ibbotson Associates, are eight that did, along with their annualized returns since 1929: Pioneer Fund (12.7 percent), Seligman Common Stock (10.5 percent), State Street Research Investment (9.4 percent), CGM Mutual (9.4 percent), Putnam Investors Trust (8.8 percent), Mass Investors Trust (8.4 percent), Century Shares Trust (7.8 percent), Scudder Income (6.6 percent).
- Why invest in a new stock fund when there are so many superb established funds available? Because they perform better, at least in their first year. "The average new aggressive growth fund has beaten its established peers by 1.4 percent in its first year," notes David Shanahan, editor of the Value Line Mutual Fund Survey (220 E. 42nd St., New York, NY 10017-5891). "The average growth and foreign funds outperformed by 1.5 percent and the average small-company fund by 4.4 percent. Over subsequent years, however, the new-fund edge faded."
- Investors who bought the five closed-end funds with the deepest discounts at the beginning of each year starting in 1986 would have outperformed the general stock market by over 60 percent, according to Widman, Siff & Co. "An initial investment of $1,000 on Jan. 1, 1986, would have grown to $3,612 with the Standard & Poor's 500 Index, $3,993 with all closed-end funds, and $5,936 with the annual five closed-end funds with the deepest discounts."
- A recent study of 1,500 initial stock offerings from 1991 to 1993 found they rose the first day, modestly outperformed small-cap indexes the next six months, then lagged. "If you want to invest in IPOs, buy early," advises Fortune. "Choose the bigger, more seasoned companies with larger offerings. To get in early, it helps to have an account with a broker who acts as a managing underwriter."
- Many investors like the inflation-hedging qualities of gold. But they don't like to lose the current income they sacrifice by holding gold stocks, most of which pay no dividends. To have it both ways, suggests Adrian Day's Investment Analyst (Box 3217, Silver Springs, MD 20918), consider two Freeport Copper & Gold preferred stocks trading on the NYSE with current yields above the market average. One is indexed to gold (ticker symbol: FCXprC), the other to silver (FCXprD).