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Use care with these risky investments

- Alan Lavine and Gail Liberman



Although the markets may look attractive, there are certain investments that require you to exercise extreme caution. Here are a few:

  • Foreign currency mutual funds. Unless you're a trader, foreign currency mutual funds or foreign currency Certificates of Deposit can prove risky. You're betting on the value of the dollar versus other nations' currencies. The dollar is at a record low against European and other currencies. Funds such as the Merk Hard Currency Fund and the Rydex Dollar Strengthening Fund are risky bets.

  • Junk bond funds. Although junk bond funds, or high-yield bond funds, sport rates of 7 to 8 percent, they invest in companies with poor credit ratings. Analysts say that if the economy slows, you could see more defaults in these types of companies. So if you invest in a high yield bond fund, make it a small part of your portfolio.

  • Funds that have seen an explosive growth of assets. If a stock fund has several billion dollars in assets due to a couple years worth of stellar performance, it could be too late to invest. A report by Morningstar Inc., Chicago, says these funds are too large, will track the market averages, and no longer will deliver market-beating returns. Funds that Morningstar places in this category: American Funds Growth Funds of America; American Funds Capital World Growth and Income; American Funds Europacific Growth; Dodge & Cox International and American Funds Capital Income Builder.

    So what pays attractive dividends and is typically less risky?

    Utility stocks and utility stock funds are good long-term investments that pay you income. This year, utility stock funds registered a total return of 24 percent. Total return includes price appreciation of the bonds, plus reinvestment of dividends.

    Top-rated utility funds own some of the following companies:

  • The Evergreen Utility and Telecommunications Fund owns BellSouth Corp., Verizon Communications, TXU Corp., Public Service Enterprise Group and KeySpan.

  • MFS Utilities Fund owns America Movil, Comcast, Calpine Corp. and Edison International.

  • The Eaton Vance Utility Fund owns stocks, such as Mirant Corp. and NRG Energy.

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    Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.


    To read more columns, please visit the column archive.




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