Don’T Snub Those Inflation Bonds

With the Federal Reserve hiking interest rates to keep the economy from overheating, now may be a good time to take another look at what had been one of the least-desirable investments around: inflation-indexed bonds.

Shunned by investors since hitting the market within the last two years - as the inflation rate was plunging - inflation-indexed Treasury bonds and savings bonds have been attracting more interest lately as concerns about rising consumer prices have resurfaced.

“If inflation returns to even normal levels, inflation bonds will pick up steam,”said Daniel J. Pederson, author of “Savings Bonds: When to Hold, When to Fold and Everything In-Between.”

Some industry experts say that’s already happening. The annual rate of inflation felt by consumers now stands at 3.3 percent, up from a 1.6 percent rise for all of 1998.

Inflation-indexed bonds - which come in five-, 10- and 30-year issues - have managed to hold their own this year even though inflation has remained relatively low and interest from the investing public has been cool.

In fact, they actually have been outperforming the rest of the Treasury market, market watchers point out.

Their average total return (price appreciation plus interest payments) was 1.88 percent through May, vs. 1.77 percent for one-year Treasury bills, minus 2.46 percent for five-year T-bills, and minus 8.77 percent for the 30-year Treasury bond, noted Kinney, whose firm offers the 59 Wall Street Inflation Index Fund, one of three mutual funds specializing in inflation bonds.

The other two funds are American Century Inflation-Adjusted Treasury Fund and Pimco Real Return Bond Fund.

The trio of funds, whose combined assets are under $100 million, have had returns ranging from 1.5 percent to nearly 4 percent so far this year, according to Morningstar Inc.

Ideas to improve your financial picture:

“Even if your company’s stock is `hot,’ you’re overweighted if your employer’s stock is your largest holding,” says American Association of Individual Investors Journal.

“This poor diversification is generally much riskier than the strategy you intended to follow. Further, the older you become (and the shorter your time horizon), the more precarious a portfolio top-heavy in any single stock becomes.”

“Stay with your new mutual fund when your old one is merged out of existence,” says investment adviser Burton Greenwald. ”Many fund companies are merging underperforming funds into better-performing ones. The mergers are usually tax free to investors.”

“Even index fund assets need to be diversified,” says Harold Evensky, mutual fund consultant. “When the inevitable market correction comes, funds that track the Dow or the S&P will tumble. Diversify with a large-cap, small-cap and an international index fund.”

The bride is a saver; the groom is a spender. She prefers bonds and CDs; he likes stocks and options.

Balanced checkbook. Overdrawn.

On-time payments. Late fees.

Should they call the whole thing off? Hardly.

But investment advisers accustomed to seeing client couples with widely varying views on finances say it’s crucial for those tying the knot to discuss those differences and how to deal with them early on - as unromantic as it might seem.

“The best advice I can give people just starting out today is to talk,” says Larry Elkin, a money manager and accountant from Hastings-onHudson, New York. “You’ve got to consciously arrive at a set of goals.”

Here are a few basic suggestions from financial experts:

Discuss your financial status. Although most couples don’t like talking about money, it’s important both parties disclose as much as they can about themselves financially - current earnings, potential inheritance and debts.

Create a budget. That determines how much money flows in and out of your household. Besides living expenses, it should include something for savings and investments as well as an emergency cash reserve.

Work out money management. Determining how you’re going to combine financial resources can be touchy, especially with older, more established couples who are used to living on their own.

Keep debt at bay. If you had to borrow for your wedding or honeymoon, pay off those debts as soon as possible. You’ll save a bundle on interest charges in the long run.

Review insurance, title assets. New life insurance, or a larger policy, may be in order since marriage typically creates financial dependency. You’ll need to draft or update a will to reflect a change in marital status. Also, you’ll need to change the beneficiaries of your insurance policies and retirement plans.

Seek outside help. Financial professionals can help couples create a stable foundation on which to build a marriage. There are advisers who can help with everything from investing for the future to passing your estate on to your heirs.