Q–I’d like to know your opinion of my investment in American Century Income & Growth Fund. Should I go to the sideline or stick it out? Being retired, I feel another opinion would be helpful.
–V.O., via the Internet
A–It’s obvious why you’re concerned: This fund that relies heavily on quantitative computer models to beat the Standard & Poor’s 500 hasn’t gotten its numbers right lately.
The $5.4 billion American Century Income & Growth Fund (BIGRX) declined 8 percent over the past 12 months to rank in the bottom 10 percent of all large value stock funds.
Its three-year annualized return of 12 percent, however, places it in the top one-fourth of its peers.
“American Century Income & Growth Fund made some bad stock picks, such as holding onto Apple Computer and some inexpensive tech names, so it’s coming off a poor performance last year,” pointed out Michael Gaul, analyst with the Morningstar Mutual Funds investment advisory. “But it’s still a pretty stable fund that doesn’t take a whole lot of risks, making it a good holding among value-oriented large-cap funds.”
Because the fund’s stocks chosen from the 1,500 largest U.S.-traded companies are diversified, it should do well if stock market movement broadens a bit, Gaul believes. It’s for investors seeking some stability, along with a chance to outperform the Standard & Poor’s 500 over time.
Yet keep in mind that the better stock index funds are less expensive than this fund (which has an annual expense ratio of 0.68 percent) and their returns predictably lag those of the index by the amount of their expenses. While this fund doesn’t make huge bets, it does make some bets and its returns can vary–not always to the positive side.
More than one-fourth of American Century Income & Growth Fund is in technology stocks. Its other large groups include financials, industrials, health care and services.
Top holdings were recently General Electric, Citigroup, Cisco Systems, Pfizer, Oracle, Intel, Microsoft, ExxonMobil, SBC Communications and Merck.
This “no-load” (no sales charge) fund requires a $2,500 minimum initial investment.
Q–My wife and I, ages 79 and 77, are selling our home and expect to net
$200,000, with no taxes due because of the one-time exclusion on net gain. We’ll invest the proceeds and use the earnings to pay apartment rent. Our alternatives include municipal bond funds, as well as a combination of high-grade corporate bonds and Treasuries that yield more than municipals in order to make up the tax difference. We don’t want stock. Agree with these alternatives?
–W.C., Wheaton
A–It’s a good start, though you must keep tax consequences in mind.
“If your tax bracket is 28 percent or higher, you should largely be focusing on municipal bonds, while if it’s lower, you should focus on taxable bonds,” advised Harold Evensky, certified financial planner with the Evensky Group in Coral Gables, Fla.
After-tax return should be the primary consideration. Diversify among eight different municipal bond funds to start out, Evensky said. Make sure that the bonds are high-quality and that their maturities vary, divided up within the five- and 10-year range.
“Rent, insurance and other items require more money each year, so you must have fixed-income investments that grow,” Evensky concluded. “You’ll probably have enough to accomplish that.”
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Andrew Leckey answers questions Sunday in Business and Tuesday in Your Money. Address inquiries to Andrew Leckey, P.M.B. 184, 369-B Third St., San Rafael, Calif. 94901-3581, or by e-mail at andrewinv@aol.com.
