Q–We own 700 shares of Waste Management. They’re not doing well and are down from our initial purchase price. Should we sell at a loss for income tax purposes or hold on?
A–Anything and everything is going on at this company right now.
The Securities and Exchange Commission opened a formal investigation into Waste Management Inc.’s bookkeeping in March to track $3.54 billion in pre-tax charges and restatement of results back to 1991. The company also disclosed it had overstated the capacity of its garbage dumps.
More importantly, Waste Management is taking an estimated pre-tax second-quarter charge of $70 million to $90 million in preparation for its planned merger with USA Waste Services Inc. Shareholders of both companies vote on the $14 billion merger proposal in July and the Justice Department is also looking at the proposed combination. Waste Management shareholders would receive USA Waste stock.
Wall Street analysts, taking note of items that stand out as positive in all of this, currently rate Waste Management stock a “buy,” according to the Boston-based First Call Corp. research firm. That includes four “strong buys,” two “buys” and three “holds.”
This year’s earnings growth is expected to be flat, versus a 17 percent increase for the overall solid waste industry. The firm’s five-year growth rate is projected as 11 percent, while the industry is expected to grow at a 13 percent rate.
Waste Management, which is actually being acquired by USA Waste in the merger deal, is the nation’s largest waste collection and disposal company. It serves 13 million residential, commercial and industrial customers in North America. It also provides international waste management services, treats and manages chemical and low-level radioactive wastes, provides recycling services and operates trash-to-energy facilities.
Q–My wife and I hold 4,179 shares of Vanguard Wellesley Fund, which amounts to about a quarter of our Individual Retirement Account investments. We’re both in our late 60s. What’s your opinion of this fund?
A–For a conservative vehicle, it’s doing OK. The $7.9 billion Vanguard/ Wellesley Income Fund gained 23.85 percent over the past 12 months to rank in the lower half of all balanced funds. Its three-year annualized return of 17.53 percent places it in the lower one-third of its peers.
Wellesley’s fixed-income component is larger than is generally the case in funds including both stocks and bonds. Long-term returns are competitive, although they haven’t kept up with the bull market due to their income-oriented nature.
“This fund is very steady in its strategy, which is one of the great things about it and many of Vanguard’s funds,” said Amy Granzin, equity fund analyst with the Morningstar mutual funds investment advisory, who considers this a good fund for someone nearing retirement. “If we were to move into a new investment scenario where growth is no longer the place to be, this conservative income fund could end up looking a lot better.”
Wellesley’s portfolio mix was recently 61 percent bonds, 37 percent stocks and 2 percent cash. Top stock groups are utilities, financial services, integrated oils, materials and processing. Average maturity of its bonds is 18.9 years with an average quality of AAA. Top stock holdings are First Union Corp., Bell Atlantic Corp., J.C. Penney Co. Inc., GTE Corp., National City Corp., Keycorp, Ford Motor Co.and Amoco Corp.
This “no-load” fund based in Valley Forge, Pa., requires a $3,000 minimum initial investment. Annual expense ratio is a low 0.31 percent.
Q–My mom was recently widowed. My dad died suddenly at age 66. When he retired a couple of years ago, he took his lump sum pension benefit and immediately invested in an IRA, listing my mom as beneficiary. Is the account still an IRA? Can my mom withdraw funds without incurring a tax penalty? Can she withdraw funds for certain purposes without incurring a tax penalty? Can she borrow money out of the account?
A– Your mother can treat it as her own and do a spousal rollover into another IRA, and won’t have to take distributions until she turns 70 1/2, said Ed Slott, editor and publisher of the Ed Slott’s IRA Adviser newsletter. “If she’s over 59 1/2 years old, she can take money out when she needs it and treat it as her own because over 59 1/2 there’s no 10 percent penalty,” explained Slott.
The other choice is to take the money as a non-IRA beneficiary, he added. While a beneficiary doesn’t pay the 10 percent penalty if she needs to get to the money, she can’t name new beneficiaries. Slott advises individuals who are doing a spousal rollover IRA to name the new beneficiaries as soon as possible to assure that it can keep growing tax-free after the individual is gone.
Keep in mind that if your mother isn’t yet 59 1/2, she can’t borrow money from it without it becoming a taxable distribution and subject to the 10 percent penalty, Slott concluded.
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Andrew Leckey, a financial anchor on the CNBC cable television network, answers questions only through the column. Address inquiries to “Successful Investing,” Suite 367, 76 N. Maple Ave., Ridgewood, N.J. 07450 or by e-mail at successinv@aol.com.
