Q–I’ve heard the new tax bill recently passed by Congress will permit individual retirement account investors to purchase precious metals for the first time. Is this true? Should investors put a portion of their IRA portfolio in gold and silver? Are bars better than coins as an investment?
A–You’re partly right. Under the previous law, the only physical precious metals permitted in IRAs were American Eagle bullion coins or commemorative coins.
Beginning Jan. 1, the new tax law expands to include gold, silver, platinum and palladium bullion bars. These typically range from a few ounces up to 1,000 ounces. The law also includes bullion coins issued by foreign governments in those four precious metals, such as popular coins of Canada, Mexico and Australia.
Whether you like the idea of investing in gold and silver in addition to your existing stock, bond or money-market investments depends on your personal objectives and risk tolerance.
For example, some advisers suggest putting 10 to 15 percent of a portfolio in precious metals as a long-term hedge against inflation and potential disruptions in financial and currency markets. Others contend these metals don’t run as counter to market trends as they once did and therefore aren’t worth including.
The question of bars versus coins is also personal preference.
“You’ll pay less of a premium over the price of gold when buying in a bar format than you would buying a coin (which typically has a 2 to 3 percent premium),” explained Ted Kempf, senior research analyst with the CPM Group commodities research firm in New York. “However, since a coin trades in a secondary market, it may have collector value because, unlike a bar, various types of coins differ from each another.”
Q–I’m a 32-year-old nurse and regular reader of your column. I’m back in school for my master’s degree and would like to know your opinion of Putnam Fund for Growth and Income for the long haul.
A–When blue-chip stocks lost steam and market strength expanded to include small-cap stocks this year, this fund paid a price. Yet that doesn’t mean a long-term investor such as yourself might not find it an attractive, low-risk, core holding.
The $31 billion Putnam Fund for Growth and Income ranked in the bottom quartile of large-capitalization value funds over the past 12 months, providing a return of 32 percent. Its three-year annualized return of 23 percent placed it just within the top half of its peers. It emphasizes insurance, finance, utilities, oil and gas.
“Putnam Fund for Growth and Income makes sense for any investor seeking market-like exposure in something that’s a little less risky than Standard & Poor’s index funds,” said Peter Di Teresa, equity fund analyst with the Morningstar Mutual Funds investment advisory. “It really looks best versus its peers in difficult or bear markets.”
Class A shares have a 5.75 percent “load” (initial sales charge), B shares have a declining redemption charge and M shares have a 3.5 percent load. The minimum initial investment is $500.
Q–We’re a retired couple in our 70s and have been accumulating Sara Lee stock and reinvesting the dividends. We’re up to 10,000 shares, which is about one-third of our estate. Should we sell now?
A–Your patience with what had been an unappetizing stock is being rewarded, thanks to a surprise baked up by management.
Sara Lee Corp. said it will outsource the manufacture of its brand-name consumer goods and repurchase a whopping $3 billion of its common stock. This restructuring will mean an after-tax charge of $1.6 billion in the third quarter, likely to erase earnings for the entire year.
Future cost savings from shedding manufacturing units is expected to be substantial, however.
Sara Lee needed a boost, since it recently merited only a weak “buy” consensus recommendation from the Wall Street analysts covering it, according to the I/B/E/S International research firm. That included one “strong buy,” six “buys” and eight “holds.”
The firm’s famous products marketed in more than 140 nations include Sara Lee, Ball Park, Hillshire Farm, Jimmy Dean, Hanes, L’eggs, Playtex and Champion. While profits rose 8 percent in its recent fiscal fourth quarter, it missed analyst expectations due to a weak hosiery business and rising coffe and hog costs.
“Sara Lee had been valued just over its growth rate but below where its industry is valued,” observed Peter Crays, manager of U.S. research for I/B/E/S International. “There were seven earnings downgrades by analysts since it had announced fourth-quarter results.”
Before the dramatic restructuring announcement, an earnings growth rate of 11.5 percent had been projected for its 1998 fiscal year, versus 9.9 percent for the food industry.
———-
Andrew Leckey, an anchor on the CNBC financial cable television network, answers questions only through the column. Address inquiries to Andrew Leckey, “Successful Investing,” Suite 367, 76 N. Maple Ave., Ridgewood, N.J. 07450 or by e-mail at successinv@aol.com.
