The Pittsburgh Press from Pittsburgh, Pennsylvania • Page 87

D24 The Pittsburgh Press Sunday, August 26. 1990 Money from Page D17 Worldwide Dollar money market fund, 8.28 percent Both funds subsidize operating expenses to boost the yields. Bob Heady, publisher of the Bank Rate Monitor, said investors would be wise to buy one-year CDs because the current rates will look good in coming months as a recession develops and yields drop more. miageting upg Many family budgets will feel the strain if inflation heats up and recession sets in. Ruth Hayden, a personal financial consultant in St.

Paul, said many of her clients are already "close to the financial edge," barely managing to pay their bills each month. Hard times rnmri niish manv nver the 11 percent, he said, "If you're somewhat optimistic there'll be a return to lower rates, take the ARM." CDs and money funds Despite declining yields offered on money market funds, Patrick Farley, a St. Paul financial planner, thinks the Mideast troubles make this a good time to park cash in a fund. Iraq's invasion of Kuwait is causing safety conscious investors to increase money market holdings and buy bank certificates of deposit and U.S. Treasury bills.

Farley believes investors should avoid buying more shares of stocks and mutual funds until the post-Kuwait stock market decline runs its course. He advised investors to hold onto shares they already own. "In long-term investing, the real buying opportunity comes in a down market. I'd wait for a strong signal that the market has reached a bottom before buying mutual funds." With cash accumulating safely in a money fund, investors have time to devise a new strategy if they see inflation increasing and a recession developing, Farley said. "We expect interest rates to continue to decline, mostly as a result of weakness in the economy," said Martha Wittbrodt, editor of IBC-Donoghue's Money Fund Report based in Holliston, Mass.

IBC-Donoghue's top yielding money funds are Alger money market portfolio with an 8.31 percent, seven-day compounded yield and Dreyfus gage Advisory in White Bear, Minn. Karvel added: "I don't believe we should always be searching and waiting for the day interest rates go to 9 percent. The difference in payments is so nominal." On a 30-year, $100,000 loan, he said, monthly principal and interest payments are $877.58 at 10 percent interest, vs. $914.74 at lOVi percent interest a difference of $37.16. Is it time to start looking seriously at adjustable rate mortgages, rather than fixed-rate loans? Maybe, mortgage lenders say, though Karvel thinks it is too soon.

"When rates are reasonable, I'd go to a fixed rate. There's tremendous uncertainty as to what the future holds." Fixed-rate mortgages averaged 10.29 percent last week, up from 10.05 percent in the previous week, according to a national survey by the Federal Home Loan Mortgage Corp. It was the highest level since a similar 10.29 percent rate was posted last June 1. On one-year adjustable rate mortgages, lenders were asking an average initial rate of 8.36 percent, up from 8.31 percent last week. Before deciding on the type of mortgage you need, Harrington said, consider the length of time you will stay in the home, your tax situation, alternative ways to invest your cash and other aspects of your total financial picture.

In general, he said, it is worthwhile to start looking at ARMs once interest rates pass 10 percent. Above said investors can expect a "very favorable return" from interest payments and the added prospect of a capital gain after rates drop and the bond appreciates. Investors can buy individual government bonds from brokers or a Federal Reserve Bank or mutual bond funds specializing in government issues. Whittlinger thinks investors will be best off buying U.S. government bonds with maturities of 10 to 20 years.

"If you're looking at a 20-year bond, ask yourself: 'Will that be a reasonable return over that period of Other bond market plays include corporate bonds with sound credit ratings and top-rated tax-exempt or municipal bonds. Some financial pros even recommend certain junk (rands that offer high yields but low investment grades. Fosback, who also edits the Income Safety newsletter, thinks the best of the battered junk bond funds offer good prospects for high long-term returns. Junk bond prices have dropped and yields have risen to such a degree that Fosback considers them the best buy among current investments. "Junk bonds are far safer than common stocks, promising returns in double digits in the long term," he said.

Even if some companies default on junk bonds in a recession, Fosback thinks the widely diversified junk bond funds will perform better than mutual stock funds through the turn of the century. Fosback's letter recommends the Vanguard High Yield bond fund, the Fidelity High Income fund and the T. Rowe Price High Yield fund. Mortgages With mortgage rates headed upward, should mortgage applicants hurry to "lock in" with a lender? Rates are unlikely to drop substantially in the coming weeks, lenders agree. Beyond that, the main Erediction is volatility, as bond mar-ets on which mortgage rates are based react to the news about the Middle East and the economy.

"I think it's going to be a little rocky," said Steve Nelson, president of TCF Mortgage. But it is also unlikely that mortgage interest rates will jump as high as they did a decade ago, when rates hit 13 and 14 percent, said George Karvel, professor of real estate at St. Cloud State University. Inflation would have to soar first, he said, and the effects probably would take months to be felt in the mortgage industry. Meanwhile, he said, the Federal Reserve has less latitude today to push interest rates up because the economy is already weak.

The best advice from the experts: Lock in if you can live with the current rates. "That's especially true for people who are right on the cusp if interest rates go up they can't afford the house," said Roger Harrington, owner of Roger Harrington's Mort to a major bear market decline of 1,000 points or so," he said. The correction was overdue, Fosback said, since it comes 2 to years after the last one. Fosback thinks the market has discounted the recession already. He doubts that oil prices will keep rising and push inflation up because other Arab countries say they will make up for the boycotted Iraq-Kuwait oil deliveries.

He looks for the Federal Reserve to lower interest rates to combat the recession and inflation to fall to about 4 percent. With this bullish outlook, he expects the stock market to rebound later in the year. Among the mutual funds he recommends are Twentieth Century Growth, Select and Vista funds, Nicholas-Applegate closed end fund, Janus Venture fund, Mutual Series Beacon fund, Dodge and Cox balanced fund and Gradison Established Growth fund. Bonds Rahn, a 28-year veteran in the investment business, said investors should take advantage now of the kind of bond-buying opportunity that comes along about twice in a decade. Rahn believes the economy has entered a recession, a period when economic activity subsides and interest rates drop.

When rates fall, bonds with higher rates appreciate in value; the investors who own them can sell them at a profit. With safe U.S. government bonds offering yields of 9 percent, Rahn edge, into foreclosure and bankrupt- rv shp sairt If you are close to the edge now, Hayden said, stop making long-term spending commitments. "If your old car is running, stay with the old car," she said. "Where people get into trouble with inflation is, the more they're locked into fixed payments, the less they have for rising costs like food." The best way to prepare for tough times, Hayden advisod, is to "get rid of debt while keeping an emergency cash pot." The more you can do that, she said, "the more you free up cash to allow you to meet the increased costs." (St Paul Pioneer Press Dispatch-distributed by Knight-News-Tri-bune.) I -I MMWHMW 1 Portable Powa Solid Wl! Introducing The Compu Add Companion And The Compu Add 316sl.

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