Keeping track of preferred stocks, corporate bonds

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times, published October 24, 1999

Q. Our investment portfolio consists mainly of corporate bonds and preferred stocks. Lately A-rated preferreds purchased at par are down considerably, according to the monthly statement from our broker, with corporate bond prices varying up to 10 points in a month. Where and how can I find accurate information about preferred stock movements and more timely and accurate corporate bond prices?

A. Although you asked only one question, I presume you really are concerned about two issues: why your account went down so far so fast and how to monitor the value of your account so you aren't surprised the next time.

This has been a bad year for income investors. As interest rates have climbed, prices have fallen for bonds and preferred stocks. Many issues are down 10 percent to 15 percent, and some have dropped more.

Although all types of income investments have suffered as interest rates have risen, preferreds and high-yielding corporate bonds have been hit hardest. When investors get worried about any market, they prefer the safest and most liquid investments. In the bond market, that description fits U.S. Treasuries.

Individual investors are holding their preferreds, but skittish money managers have backed away from the market, said Greg Ghodsi, a broker with Robert W. Baird & Co. in Tampa.

"Yields are higher than they should be relative to the risk," he said. "When we get into the first quarter of next year, if we don't get any inflation surprises, they should move back into a normal range in terms of the relationship to Treasuries."

Many preferreds popular with older investors have gone from yields of 7 percent to 7.5 percent at the beginning of the year to yields of more than 8 percent. Ghodsi said you might consider that a buying opportunity or think about taking a tax loss by selling one preferred and buying a different issue.

Your own brokerage firm is going to be your best source of up-to-date information. Most large brokerage companies and many small ones allow customers to look up their accounts by computer. I recommend this approach if you really want to keep up to date. If your brokerage company does not offer this service or you are not interested in getting a computer and going online, ask if your broker can give you a mid-month report over the telephone or by fax.

If you are online and know the ticker symbols, you can keep track of stock portfolios on many financial Web sites, although only a few (http://www.bondsonline.com is one) offer bond prices. You also may find some of the preferreds you own listed in stock tables in the Saturday Times or in the Wall Street Journal.

Q. When I left a company after 15 years, I rolled over my 401(k) to an annuity with big fees -- a big mistake. I thought I could wait until the surrender charges would end after six years and roll it to an IRA. Now I find I can't do that. Why not? I'm told I can move it to another annuity like Vanguard and pay less fees, but I must pay a penalty to take it out.

When you make mistakes, why do they penalize you?

A. Tax law controls IRA rollovers. Unfortunately for you, the law does not permit an annuity to be rolled over to an IRA. If you don't like the tax law, your best bet is to lobby to change it. Write or call your representatives in Congress.

An annuity is a contract. When you sign it, you agree to its terms, including the surrender charges. An insurance company puts the charges in the contract so it has a way to recover the money it pays as a commission to the broker who sells you an investment. To avoid paying surrender charges, carefully examine potential investments before signing any documents or handing over your money.

Online money map

The online version of Kiplinger's Personal Finance magazine (http://www.kiplinger.com) is a great source of free advice and information about a variety of money topics. The site's forums provide a way for readers to discuss issues, such as paying for college, with reporters who have written on the topics.

-- 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, or to huntley@sptimes.com by e-mail.

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