What’s Old Is New

St. Louis couple paves their path to the future with equities tiesand bonds

There are a lot of reasons to use the word “new” to describe Tyrone and Denise Hill’s life. They are newlyweds with a new baby, a new home, and a new portfolio of diversified investments that will fund their retirement and 3-month-old Ebony Nicole’s college education. But what helped expand the couple’s portfolio to its current structure is a relatively old-fashioned investment vehicle4U.S. Savings Bonds. The Hills are using the rather conservative bonds to seed a more aggressive investment strategy and grow their retirement nest egg.

Tyrone, a foreman at the Laclede Gas Co. in St. Louis, was 14 when his mother began buying Savings Bonds. Now the 35-year-old investor is using the proceeds from maturing bonds to buy individual stocks. The single-income family is building wealth4$1 million is their 20-year target4to usher in the retirement stage of their life when Tyrone reaches 55. His wife, Denise, 28, is a stay-at-home mom and is in the process of launching a child daycare business.

Besides his Savings Bonds, Tyrone began his married life with shares in the Van Kampen Pace (ACPAX) fund, which is now valued at $27,000. With the assistance of Roger M. Macon, an investment representative at retail brokerage firm Edward Jones in Florissant, Missouri, a year ago the Hills transferred the assets in the conservative fund into a full-service brokerage account. Then they reallocated some of the assets into more aggressive shares within the Van Kampen fund family4namely Van Kampen Emerging Growth (ACEFX) and Van Kampen Technology (VTFAX). The remaining assets were used to purchase shares in the Putnam Health Sciences Trust (PCHSX) to diversify their portfolio.

According to Macon, when it comes to individual stocks, the Hills are building a long-term investment strategy with blue-chip companies. They currently allocate 10% to 12% of Tyrone’s income to their investment plan. To initiate their first exposure to individual stocks, the Hills purchased Southwest ern Bell Communications (NYSE: DSW), Pfizer (NYSE: PFE), and Microsoft (Nasdaq: MSFT). Macon recommended Pfizer because it offers good growth potential, and the drug sector usually stands up to market fluctuations because of the growing population of aging people.

The couple used $5,000 of the maturing savings bonds to buy their first corporate bond in June 2000. It has an 8% yield and pays $33 a month in interest. It matures in 2015. They more recently purchased their first insured tax-exempt municipal bond from the Missouri Health & Higher Educational Facilities Authority with a 5.25% coupon due in 2028 with a 5.22% yield to maturity. The municipal bond, for instance, provides a 7.62% taxable equivalent yield based on Tyrone’s 28% tax bracket. He earns between $45,000 and $55,000 a year, depending on overtime, and currently invests 8% of his salary through his company’s 401(k) plan each pay period. In addition, the couple contributes $166.66 a month to a Roth IRA for the maximum yearly contribution of $2,000.

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