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How to get seven percent on your money

moneylogo_optBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY

What's the matter, you're not happy getting 0.65 percent on your money market fund? Or 0.75 percent on your one-year CD?

Well, I don't blame you if you're disgusted. But I am the bearer of good news. I know of a mutual fund yielding 17 percent. And of several funds yielding 6 percent, 7 percent, and 8 percent.

Just remember that the higher the yield, the greater the risk – usually. A yield is high generally because people want extra compensation to take on a risky investment. And a high yield may not offset a steep decline in an investment's value. In other words, you don't want an 8 percent yield if the value of your investment is going to shrink by 8 percent ... or more. And it happens.

Sure, you can also get a higher yield by lengthening the maturity of your investment – buying a five-year CD instead of a one year. But if interest rates bop up, you're going to be out of luck.

Oh, that 17 percent yield? Well, the minimum first investment is $1 million. (Did you faint?) And no doubt such a glorious yield isn't going to continue – the fund started only in 2008. The fund is PIMCo Fundamental Advantage Total, a long-short fund run by bond maven Bill Gross. In 2008, its total return was 35 percent; last year, 10.19 percent. (800) 927-4648 – in case you have $1 million lying around.

A somewhat less expensive choice is a mutual fund chockablock with dividend-paying stocks. Here are three good ones:

Gabelli Equity-Income was recently yielding 2.1 percent. It fell 34.96 percent in 2008, but rose 29.14 percent last year. Over 10 years, up an impressive 4.78 percent. Highest rating from Morningstar. Top holdings: Kraft, Swedish Match, Sybase, Coca-Cola, IBM. Manager: Mario (the Great) Gabelli. Minimum: $1,000. Phone: (800) 422-3554.

Vanguard High Dividend Yield Index is paying 2.6 percent. Top holdings: ExxonMobil, Microsoft, Procter & Gamble, Johnson & Johnson, GE. Lost 32.51 percent in 2008, gained 17.52 percent in 2009. Morningstar writes that it could be "a core holding." Four stars. Minimum: $3,000. 800-662-7447.

American Century Equity Income was recently yielding 2.6 percent. Rated five stars by Morningstar, it lost only 20.05 percent in 2008. Good for long-term investors who want "a cautious approach," writes Morningstar. $2,500 minimum; 800-345-2021.

Next up, bank-loan mutual funds. Here's a fine one:

Fidelity Floating Rate High Income, recently yielding 3.2 percent. Five stars from Morningstar and an "Analyst Pick." Fell 16.47 percent in 2008, rose 28.86 percent in 2009. Five-year annualized return: 4.2 percent. (Morningstar lists the following: "average effective duration: 0.0 years.") $2,500 minimum; 800-544-4774.

Morningstar likes another such fund – Eaton Vance Floating Rate A – but it has a 2.25 percent sales charge. Screw that.

Next: foreign bond funds.

Fidelity New Markets Income was recently yielding 6.2 percent. It specializes in emerging market bonds. Ten-year annualized return: 12.54 percent a year. (Wow.) Lost 18.24 percent in 2008, gained 44.56 percent the following year. (Wow again.) Four stars. An Analyst Pick. Minimum: $2,500; phone 800-544-6666.

Morningstar also likes PIMCo Emerging Markets Bond D, yielding 4.3 percent. Four stars and an Analyst Pick. Lost 14.34 percent in 2008, gained 30.02 percent the following year. Ten-year annualized return: 13.82 percent. Minimum: $1,000; 800-426-0107.

Also good: T. Rowe Price Emerging Markets Bond, yielding 6.4 percent. Three stars. M* calls it "a fairly steady, relatively predictable performer." Minimum: $2,500. 800-225-5132.

Next: multi-sector bond funds.

One of my favorites actually has a small exposure to dividend-paying stocks: T. Rowe Price Spectrum Income, yielding 4.2 percent. Ten-year annualized return: 7.22 percent. It's an Analyst Pick, and M* writes that it provides "a smooth ride." In 2008, it lost only 9.43 percent. In 2009, rose 20.29 percent. Minimum: $2,500. 800-638-5660.

Next: high-yield (junk) bond funds.

A good one is Fidelity High Income, yielding 6.7 percent. Lost 23.72 percent in 2008, rebounded 51.46 percent in 2009. (That's not a typographical error.) Ten-year annualized return: 7.01 percent. Four stars and an Analyst Pick. Minimum: $2,500. 800-544-6666.

Even better may be Janus High Yield T, yielding 7.5 percent. Ten-year annualized return: 7.39 percent. Lost 19.32 percent in 2008, gained 40.86 percent the following year. Not so aggressive as some other high-yield bond funds. Minimum: $2,500. 800-525-3713.

Finally, convertible bond funds.

Vanguard Convertible Securities is yielding 4.1 percent, and has returned an annualized 5.91 percent over ten years. Lost 29.79 percent in 2008, gained 40.81 percent the next year. Five stars and an Analyst Pick. Minimum: $10,000. 800-662-7447.

M* also looks with favor upon Calamos Convertible A, but it has a 4.5 percent sales charge.

I could continue writing about pretty-good fixed-income funds with decent yields, but I'm getting tired of looking up all the damn numbers.

The funds I've listed will just have to do.

Warren Boroson will answer financial questions sent to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

 

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