Do you own individual corporate or municipal bonds or preferred stocks? If so, this could be a good time to upgrade your portfolio.
Low interest rates and investors' increasingly desperate search for yields have combined to push up prices on income investments, including lots of those formerly disdained. The market has gotten so overheated, the Vanguard Group recently closed its High Yield Corporate Fund to new investors.
The flip side of this is that investors who own many poor-quality issues have a chance to unload them at decent prices.
"Would you buy that bond today? If the answer is "no,' you should sell it," said Greg Ghodsi, a broker with Robert W. Baird & Co. in Tampa. "If you have a bond that you bought that was A-rated five years ago and it tanked when it got downgraded to BBB or BB, and now it's selling for close to what you paid for it, why not get out of it? This is an opportunity to sell it."
He said income investors should review their portfolios to decide what's worth keeping and what isn't.
"If you have a good bond paying good income, you should keep it," Ghodsi said. "But when you get a rally like this, you should get rid of weak links in your portfolio."
Ghodsi said investors holding onto lower-quality income investments hoping prices will go even higher are taking a big chance. Lots of tech-stock investors who had the same attitude three years ago have been kicking themselves ever since.
Q. Many months ago I purchased 500 shares of Kmart stock when it was on the decline because I earnestly believed they would pull out of their plunge. Recently I heard Kmart stock is back on the market and called my broker to verify this. He actually laughed at me. He said my stock was bankrupt, worthless and had nothing to do with the new KMRT stock on Nasdaq.
How can this be? It is still Kmart. Does this mean that all of us who still believed are tossed out like so much garbage? If this is the case, I will never set foot in another one of their stores. I really didn't appreciate my broker's laughter at my expense either.
Welcome to the cold, cruel world of bankruptcy reorganization. Under bankruptcy law, lenders have priority claims, and shareholders like you are last in line. As part of its reorganization plan, Kmart canceled its old stock, formed a new company, Kmart Holding Corp., and issued shares of the new company's stock to creditors. All you get is a tax loss for your worthless security.
What happened to your Kmart shares was actually the most likely outcome the moment the company filed for bankruptcy. You should have discussed this with your broker back then. If you were determined to hold the stock anyway, you should have been following it very closely. It is easy to get emotional about money, but usually people make better decisions when they focus on the facts of the situation.
Q. What is the safest way to get money while I travel? I don't want to carry a lot of cash, but I wonder if traveler's checks are still the best method.
You certainly can use traveler's checks if you like, but unless you are going someplace really remote, you should be able to rely on your ATM card or debit card to withdraw cash from your bank account as needed. Just don't make your withdrawals so small that you have to run to the ATM and incur ATM fees every day. Check with your bank in advance if you have questions about which ATM networks you can use and whether they are available in the area you will be visiting. Of course, you can also pay for some things with a credit or debit card.
Carry only a few cards with you when you travel. If you go with a companion, each of you should carry one card that the other does not have. That way you have a backup source of funds even if one of your wallets disappears. Before leaving town write down account numbers and customer service telephone numbers for every card you will be carrying with you. Keep the paper separate from your cards so you can report lost or stolen cards immediately.
Whatever purchase method you use, keep your receipts.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
