The Big Boomer Theory

The baby boom generation has had a long time to accumulate wealth and income. Now it's time for them to reevaluate their portfolios.

going on there.”

You don’t necessarily have to have direct contact, though, says Art Thompson, a senior vice president at the Wall Street firm Oppenheimer & Co. “Investing is a difficult game, but looking at consumer products, for instance, makes it simple.” Thompson says one good strategy is to focus on products you use all the time — Coca Cola, IBM, Microsoft and Dell — who he reasons probably stand to grow for the foreseeable future.

Another strategy is to look for companies paying high dividends, above the 1.8% or so that the S&P 500 now pays. A sturdy dividend is a possible indication that management thinks business is sound, or that the stock might soon appreciate in the market. For other basic tips, we’ll refer you to the article “8 Stocks to Bank On” (August 1997), which had some useful basic approaches.

A heavy concentration in stocks works fine, especially if you’re younger or further from your long-term goals. Under those circumstances, you’re looking to increase your return. But once you’ve built up the stock side of your portfolio with mutual funds and a few choice shares, it’s a good time to expand into fixed income. The bond sector, as it’s called, is a way to store wealth and at the same time receive a sizable return for your investment.

In essence, bonds work as a loan — be it to the federal, state or local government. Your promise to let those entities borrow a set amount of money is rewarded two-fold. First, you’ll get your principal or original investment back at a certain maturiy date. A $5,000 30-year Treasury will mature in the year 2027, at which time you’ll get the $5,000 back. SecondIy, you’ll receive regular interest payments biannually, in the case of a U.S. Treasury bond. Investing $5,000 in a treasury yielding 6%, that is, paying 6% annual interest, will garner you $150 in interest every six months, an amount we’d suggest you turn around and reinvest wherever you choose — another bond, stock, mutual fund or even a savings account. Historically, 30-year U.S. Treasuries — the yardstick used to judge the bond universe, have averaged about a 5% annual return, according to statistics for 1926-1995, compiled by Ibbotson Associates. Of course, you’ll probably aim for a shorter maturity, in which case you might give a small bit — perhaps 0.10%-0.25% — in interest. Still, the value of putting money in bonds remains the same — preservation principal with a steady amount m return.

Bear in mind that the world of bonds does have its complications. When interest rates rise, a bond’s principle decreases. making the bond worthless. When interest rates fall, the opposite occurs. But these are problems that arise for individual investors only when you sell a bond holding before its maturity . We’d suggest that most investors avoid the headaches and hold on to bonds until they mature.

There’s another angle for bond investment that works well if you’re in a 31% or higher tax bracket — municipal bonds. After having stockpiled $45,000 in the market, Williams has

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