flow but they could witness a healthy gain as the prices of these vehicles tend to rally when rates drop.
Case in point: In early January 1998, the yield of the 30-year Treasury stood at 5.92%. By November, it dipped to 5.07%-before the world economy and the stock market sustained a number of jolts.
To review the results, look at mutual funds that follow the three groups. As of October 31, utility funds, for instance, posted a 22% total return during the preceding 12-month period, compared with an average annual of 11% over the last five years, according to Morningstar Inc., the Chicago-based investment research firm that tracks mutual funds. Treasury and muni bond funds didn’t fare as well but still outperformed their historic averages. Government bond funds, which invest in Treasuries and muni bond funds, returned investors almost 9% and 7%, respectively, compared with 6% and 5% over the previous five years. The average stock fund, on the other hand, posted a total return of 10.9%.
Consider another factor: analysts say the stock market may be in for a bumpy year. Price-to-earnings multiples (P/Es)-a measure of how stocks are valued according to corporate profits-for the Standard & Poor’s 500 have never been higher. According to Zacks Investment Research, the S&P 500 currently trade at an average 26 times 1998 earnings. Historically, the market has traded between 9 times (considered very cheap) to 22 times (very expensive) its projected earnings. Expect stock prices, in general, to come tumbling down.
“If you’re concerned about the ability to get your money back for your investments, this is a good time to go into bonds or utility stocks which provide a yield,” says Simmons. “That’s especially true now that there are concerns about the stock market’s ability to deliver high returns.”
JUST HOW MUCH?
Money managers have an answer for just this kind of scenario. When the going gets scary, they tend to move out of risky stocks and buy more sturdy investments.
The average investor, however, can’t keep shifting investments back and forth-after all, there are hefty brokers’ fees for each transaction. Instead, as you read on, keep in mind that many financial planners suggest that the percentage of your portfolio you choose to hold in bonds should be roughly the same as your age. The reason: as you get older, you should become a less aggressive investor. That figure isn’t meant to be hard and fast. If you want to take on more risk with the possibility of greater reward, boost the percentage held in stocks by 10-20 percentage points.
A word of advice, before we move on. As with stocks, it’s best to take a patient, long-term approach to treasuries, munis and utility stocks. “There’s no way to predict just where point yields will end up. If you spend too much time trying to pinpoint it, you’ll invariably get burned,” says Napoleon Rodgers, a fixed-income portfolio manager for Alpha Capital Management, an institutional investing firm in Detroit. “It’s best to invest for the long haul and give