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Question:


Where can I get a 7% to 8% return on my investment? What vehicles should I look into: stocks, mutual funds?
-PierreWS


Answer:


This could be one of the worst times to ask that question. The stock market has doubled in the last two years and commodities have soared, leaving them vulnerable to pullbacks. Interest rates on bonds, bank accounts and money-market funds have plunged, resulting in low returns in the traditional instruments used to earn income. Still, there are some investments that pay in the neighborhood of 7 percent and do not entail excessive risk.

Some corporate high-yield bonds – bonds issued by less creditworthy companies – yield in the vicinity of 7 percent and don’t have very long maturities. That makes them less sensitive to rising interest rates and also gives the companies less chance to go belly up. Buying individual bonds can be expensive and difficult for small investors, however, and if you just buy one or a few you won’t be properly diversified. That makes a mutual fund a better option if you’re interested in high-yield bonds.

A better bet, in the opinion of some portfolio managers, is blue-chip stocks that have high dividend payouts. The phone companies AT&T and Verizon, the utility Excelon and the drug maker Bristol-Myers Squibb recently had yields between 4.7 percent and 5.7 percent and valuations cheaper than the broad stock market. With those kinds of yields and valuations, you don’t have to make heroic assumptions about the potential for the stocks to appreciate in order to meet your 7 percent target.

-Conrad de Aenlle



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